Thursday 19 October 2017

Hedge funds go short on Cairn

Cairn Homes development
Cairn Homes development
Gavin McLoughlin

Gavin McLoughlin

A high-profile computer-driven hedge fund has taken a bet against the Irish property market via a short position in Cairn Homes.

GSA Capital has a net short position worth 0.6pc of Cairn, according to publicly available documents. The housebuilder - sitting on a massive landbank amid an acute housing crisis - closed at €1.33 in London on Friday, just off an all-time high of €1.35, with a market cap of €920m.

GSA is run by Jonathan Hiscock, a former proprietary trader at Deutsche Bank, who was ranked Britain's 18th richest hedge fund manager last year with a fortune of £300m.

GSA began life in Deutsche Bank in 2001 before Hiscock and his team took it independent in 2005.

The documents also show Cairn, which is run by chief executive Michael Stanley, is being shorted by Numeric, which also operates on a computer-driven basis. Numeric has a net short position worth 1.4pc of Cairn.

Numeric and GSA are so-called 'quant' funds practicing quantitative investment strategies, using mathematical formulas and computer algorithms to make trading decisions. So-called shorting enables investors to take a bet that a company's share price will fall. It can involve borrowing shares and selling them, before buying the same number of shares back and returning them at a later date at what the investor hopes will be a lower price.

After suffering a meltdown between 2007 and 2011, quantitative investment strategies began to come back into vogue. In May 2016, Alpha Magazine highlighted that six of the eight highest-earning US hedge fund managers were "quant jocks," relying heavily on computer-driven investment strategies to produce the lion's share of their investment decisions.

Hedge funds globally have been expanding their quantitative teams to profit from a world awash with data and as investors allocate more capital to quant funds.

Managed futures, a hedge fund strategy that uses mathematical models to bet across asset classes, had raised $19.3bn in 2016 up to December 5, according to investment database eVestment, while the rest of the industry suffered $77bn of withdrawals.

Additional reporting Reuters and Bloomberg

Sunday Indo Business

Also in Business