Hedge fund managers were the ubiquitous emblem of pre-credit crunch excess. When the bubble burst, however, many of the more opportunistic funds shut up shop, while the remainder sheepishly skulked off into hiding.
But we haven’t heard the last of the hedgies – they’re back in the game and back to their old tricks. As Tim Human writes in November’s cover story for IR magazine, arbitrage funds are making a comeback in M&A.
‘I operate under the premise that shareholders ultimately make the decision,’ said Marius Kloppers, CEO of BHP Billiton, a week after his company went hostile in its approach for Potash Corporation of Saskatchewan.
And yet, by Kloppers’ own admission, hostile takeover attempts are not always decided by the long-term shareholders of the target. Arbitragers don’t need to see the price rise much before they are happy to make a swift exit. And this is where their interests often diverge from those of the long-term shareholders.
Standard Chartered has also witnessed share price volatility as rumors about a bid from JPMorgan Chase propagated. As the Standard Chartered example shows, however, hedge fund-driven share price fluctuations are not just down to M&A rumors.
According to several reports, the bank’s stock rise yesterday was due to the closing of aggressive short positions, after many hedge funds bet the bank would become embroiled in a money laundering investigation by the US Department of Justice.
A small setback for the resilient hedge funds – but I doubt they’ll be going into hiding any time soon. Hedgies are back and brimming with confidence.
This is an edited version of IR Insider, IR Magazine‘ weekly newsletter. To receive the newsletter, please register here.
