Gotham and Portsea founders are joining forces in a new short sale fund
Two of the biggest names in shorting are teaming up to launch a new hedge fund, betting that a downturn in markets will help them repeat their winning bets against the likes of Wirecard and Steinhoff.
Dan Yu, founder of research firm Gotham City Research, and Cyrus De Weck, founder of Portsea Asset Management, plan to set up General Industrial Partners early next year, according to people familiar with the matter.
Gotham City is known for its campaigns against Spanish WiFi provider Let’s Gowex, which later filed for bankruptcy and admitted its accounts had been falsified, and against insurance claims processor Quindell. Portsea bet against stocks including NMC Health, the former FTSE 100 group that went under administration in 2020 after a multi-billion dollar scam was uncovered.
Both also have opposition to Steinhoff, the South African group whose shares collapsed after accounting irregularities were uncovered in 2017, and Wirecard, the German tech giant whose failure in 2020 gave short sellers a profit of more than €1 billion in one week.
The new firm is expected to launch early next year and will be one of a handful of hedge funds focused on short selling. He will hold a portfolio of 15 to 20 short positions hedged by holding baskets or indices of stocks. If Yu and De Weck find what they think is a particularly compelling target, they might make a very concentrated bet against the stock in a separate vehicle.
The launch comes after a period of weakness for short sellers, when many funds struggled to benefit from the strategy, during a long bull run punctuated by bouts of exuberance when the stock market seemed to pay little attention to company quality.
In 2020, London-based Lansdowne Partners halted shorting in its flagship fund, saying it had become more difficult to find attractive bets against overpriced companies.
Last year, short bets by some hedge funds, most notably Melvin Capital, backfired during the meme stock craze. In addition, the US Department of Justice has been investigating possible trade abuse related to short selling, while the Securities and Exchange Commission has proposed requiring funds to disclose more information about their bets.
Still, some managers believe that shorting stocks will thrive in a bear market as rising interest rates begin to reveal weak business models. Martin Stapleton, another respected short seller in the industry, raised capital for a new fund in London, Perbak Capital Partners, over the past year.
“There is a generation of market participants who, after 14 years of QE [quantitative easing]are ill-equipped to deal with the QT [quantitative tightening] Transition,” GIP wrote in a presentation to potential investors provided to the Financial Times.
While GIP plans to go public with a small number of its positions, most bets are being kept private. The new hedge fund only plans to charge investors for expenses and a performance fee when it makes money. This approach means that if GIP loses money, Yu and De Weck would not receive a salary.
Yu and De Weck declined to comment.
Portsea, which has made money shorting companies with accounting problems for six of the past seven years, wrote to its investors this week detailing the fund’s launch. Those who switch to GIP retain their so-called high-water mark, a mechanism designed to protect investors who have suffered a prior loss from paying further performance fees before they are full.
https://www.ft.com/content/38bf866b-380b-4917-98f4-ce32a1b8c4fb Gotham and Portsea founders are joining forces in a new short sale fund