independent

Sunday 20 April 2014

Lansdowne hedge fund takes huge 'short' on Tullow

ONE of the biggest hedge funds in the City of London is short-selling Tullow Oil. Lansdowne Partners has taken a huge short position on the Irish company, which is traded mostly on the London Stock Exchange.

According to filings published by UK regulators, the fund now holds a net short of 1.33pc on Tullow.

This means Lansdowne has bet that Tullow shares will fall and has backed it by shorting 1.3pc of Tullow's issued share capital.

Both Lansdowne and Tullow declined to comment on the disclosure. However, market watchers said the disclosure was unlikely to be a bet against Tullow specifically.

Lansdowne has gone short against a number of companies, including Tesco, BSkyB and Prudential. The moves are being seen as more of a hedge on different sectors, rather than on a particular company.

Under UK rules, investors have to declare if they have a net short position on a company of more than 0.5pc. They only have to disclose a long position if it hits 3pc of a company.

Short-selling occurs when an investor sells shares in a company, then buys them back at a lower price and pockets the difference. In practice, investors tend to do this using borrowed shares, rather than with shares they own outright.

Investors

The practice has been controversial during the financial crisis, with numerous companies and governments accusing short-sellers of driving them into the ground. Various institutions have instigated short-selling bans at different times.

Advocates of short-selling, however, have described themselves as providing "price discovery" by helping investors realise the true value of a company, while also offering extra liquidity to the market.

One of the biggest investment funds in Europe, Lansdowne Partners earned notoriety in 2007 when it reportedly made a multimillion-euro profit on the collapse of UK lender Northern Rock after it bet that the bank would fall.

Overall Tullow is the 39th most shorted share on the London Market. US investor David Einhorn's Greenlight Capital is short Daily Mail and General Trust by 4.37pc -- the biggest position by far.

Irish Independent

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