www.efinancialnews.com/homepage/content/2452140776 - UK pension fund to invest ?3bn in hedge funds. Still think they are parasites?
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www.efinancialnews.com/homepage/content/2452140776 - UK pension fund to invest ?3bn in hedge funds. Still think they are parasites?
Yes, I do.
Hedge funds make their money by exaggerating bubbles and 'holes' in the market. They degrade capitalism in the sense that instead of supporting the companies that they (for a short time) own, they become the enemy of the company. The US senate is considerating forbidding hedge funds to operate in the oil market because of the recent price spike caused by oil speculation. It would also seem that the Germans hold a strong distaste for hedge funds.
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So a typical tabloid type non-story targetted for readers with a "Daily Star" level of intelligence it seems. ;-)
Its not a 'non story' at all. And I don't appreciate your insulting comment (although reading your past posts reveals this as a theme). I understand how hedge funds work and I'm one of many intelligent people who think that they are destructive of good, well run companies. It is doubtful that the release of 5% of VW will save these funds from some fairly substantial losses.
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Surely the issue here is not the sort of company that did the trade but that the trade was shorting.
I have no problem with the concept of hedge funds - after all they came into being to hedge risk, it is the manner in which this hedging may be done which is the problem.
It is the increasing use of various sort of financial instrument which are in effect gambling with borrowed money that gets my back up.
Can anyone explain why short selling is a good thing?
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"Can anyone explain why short selling is a good thing?"
If you think an instrument will rise, then buying it, or going long, gives you an opportunity to make a profit.
If you think an instrument will fall, then selling it short gives you an opportunity to make a profit.
From that perspective, where's the problem? You take a view, you walk the talk.
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"If you think an instrument will fall, then selling it short gives you an opportunity to make a profit."
But selling short is actually selling something you don't own. In many other transaction types this would be illegal, or at least highly immoral.
It's gambling, pure and simple, which I have nothing against in principle. But as someone else said , the concerted efforts of these types have been enough to de-stabilise the markets. They probably have little concern for the effect of their actions on the wider picture, so long as they make a few bob along the way.
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>>If you think an instrument will rise then buying it or going long gives you an opportunity to make a profit.
This I've understood since age 5
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If you think an instrument will fall then selling it short gives you an opportunityto make a profit.
This I still don't get assuredly. If you buy at say 100 p / share and it falls to say 60p , how can you have made a buck ?? or is it that you never ' own ' it in the Ist place ?
please enlighten me ? and whilst at it, what the hell is ' Mimsing ? ' gets my bearded goat...
Edited by motorprop on 29/10/2008 at 13:09
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Can anyone explain why short selling is a good thing?
The hedge funds would argue that they are 'exposing frailty' in the market. In reality, a successful shorting is when the company is more or less killed. Its perversion of capitalism for an owner to desire the decline of his company's stock and profit from it. When a few people are doing it then its a minor problem, when large numbers of funds are playing the game, often in coordinated attacks, with large percentages of shares on loan, then it becomes a major problem.
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I didn't even realise VW made hedges.
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I didn't even realise VW made hedges.
Yes, but SEAT and Skoda make ones that are just as good and cost less; Audi make ones that are posh and cost more.
:-)
Alex.
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Yes but SEAT and Skoda make ones that are just as good and cost less; Audi make ones that are posh and cost more.
If only SEAT or Skoda had an equivalent model to the 7-seat Touran. I'd have one like a shot. The Altea XL only has 5 seats.
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Selling short is NOT selling something you do not own. That is naked shorting which is not legal in the UK.
In the UK you have to borrow shares so you can sell them. Guess who lends the shares out for a fee? The Pension Funds.
All this debate is pointless and wrong.. It is proven Banks shares fell when shorting of them was banned.. And they fell faster becuase there were no shorters buying to take profits.
QED. Ironic.
Edited by madf on 29/10/2008 at 13:01
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"This I still don't get assuredly. If you buy at say 100 p / share and it falls to say 60p"
But you didn't buy, you sold. You've borrowed the shares (as you have to by law). You then sell at 100p. The price falls to 60p, so you buy. You then hand them back to the person who lent them, keeping Y x 40p, where Y = the no. of shares.
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But you didn't buy you sold. You've borrowed the shares (as you have to by law). You then sell at 100p. The price falls to 60p so you buy. You then hand them back to the person who lent them keeping Y x 40p where Y = the no. of shares.
Then why the hell does anyone lend them if they're going to get them back worth less?
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For money. The lenders still have their shares, which are worth whatever the market rate is. The shorter pays to borrow them, to support his deal. He is gambling that tomorrow the prices will be lower, when he can buy shares for 50p which he's already sold for a quid.
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For money. The lenders still have their shares which are worth whatever the market rate is.
Well call me old fashioned but I don't fancy lending someone some shares which I own and getting them back worth 40% less. Doesn't sounds like I'd make much money out of that.
Odd.
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No, no, no... :-)
Your general principle is right (i.e. when you get them back they will be worth less, if that's the way the market has gone), but you don't ever part with your shares.
Many pension funds are not active share traders, or at least not that active. They just buy huge amounts of quality stock, and make money by hoping it will appreciate and lending to short sellers. They do not trade.
So, with no intention of selling your shares, you can make them earn for you by hiring them out.
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Well call me old fashioned but I don't fancy lending someone some shares which I own and getting them back worth 40% less. Doesn't sounds like I'd make much money out of that.
Short sellers have to pay a fee for borrowing the shares. If your shares are going to fall 40% anyway, you might as well make a few quid by lending them out to someone in the meantime.
Of course, if there's so much short selling going on that it starts affecting the share price itself (as probably what happened with HBOS), then it's maybe not such a great idea from the original shareholder's point of view.
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If I borrow something I don't own it do I? Selling short IS selling something you don't own. Naked shorting is where you haven't even bothered borrowing the shares you are selling the rights to.
That's why the shorters have to buy the shares at a future time to fulfil their position. That's the gamble, and that's the reason for quite a bit of the volatility in the markets, and in particular it's what appears to have happened at VW.
And really, whether or not Banks shares fell once shorting was banned is hardly a justification for shorting. To me, that more shows that earlier gamblers had pushed the share values higher than they deserved to be, and clearing out the heavy gamblers from the market has allowed them to settle at a more realistic level.
Edited by smokie on 29/10/2008 at 13:46
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There will be a wide range of opinion on what level is 'realistic'. If that point was clearer there wouldn't be such scope for selling short.
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This example with VW goes to show how risky some of their business is. They should have known Porsche had approved taking their shares above the 50% mark so when they became available they started snapping them up. They should have also known the state of Lower Saxony held 20% meaning that they were gambling on buying very few shares. The gamble that the shares would fall was clearly shortsighted.
Although Porsche has said it will help out they will no doubt make a tidy profit - the hedge funds need the shares to complete deals and the only place they can get the shares from is Porsche.
I wonder how much Porsche is worth taking this into account. VW market cap is around ?161bn but Porsche is only about ?5bn. But they owned 75% of that ?161bn don't they.
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Seems it's just a question of degree.
When you sell shares you don't own but have borrowed you have to go into the market to buy them and get them back to their owner.
If you naked short you sell shares you don't own and have to go into the market to fulfil the bargain you've made.
As long as you've a reasonable expectation of making the deal go through I don't see much difference: borrowing is just an ethical loin cloth to cover naked greed.
Short sellers argue that they just identify ailing companies. VW. Yeah, right.
Which UK pension funds lend shares? Anyone know?
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Some investment managers also lend shares.
As to whether the manager or the funds get the fees? No idea....:-(
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Which UK pension funds lend shares? Anyone know?
To quote from the Peston blog:
" 85. At 11:23am on 29 Oct 2008, JayPee28bpr wrote:
I cannot speak for all investment funds. However, I have had responsibility for running lending programs in a number of large funds. I can state categorically that none of the lending fees went into our bottom line. All lending earnings net of the program's costs went into the fund for the benefit of investors. Do I think some investment managers take a cut of earnings for themselves? Yes I do. Can you do anything about it? Yes. If you are in a defined benefit pension scheme, ask one of your Member Trustees for the scheme's lending policy and details of how lending revenue is shared. You probably won't get the actual percentage splits (tend to be covered by non-disclosure terms), but you should get confirmation that the fund manager can't take a cut. If you have defined contribution pensions and/or ISAs invested in unit trusts/OEICs, ask the manager of the Funds you're invested in for details of their lending policy and who gets what out of the fees. Switch Funds if you don't like the policy, and assuming you have the choice in your DC pension."
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If I borrow something I don't own it do I? Selling short IS selling something you don't own.
What do you own?
Most of the world's peoples [except the likes of those who live their lives by a bartering system] live on borrowing and selling things they don't own.
Get a business loan, get a mortgage for your house, use credit to buy food/fuel/clothes, borrow time/expertise from your employees on the promise of a future wage, etc. etc. - all this is done on the basis of borrowing with a promise to pay a lender at some future date.
The only thing anybody can claim claim to own is their own body, and in some cases some people cannot even claim that.
p.s. as a comment on the BBC blog says : "Porsche .... is one of the biggest hedge funds in the world. According to their own financial statements, last year Porsche made a huge amount more from trading in the markets than they did from selling cars. "
Edited by jbif on 29/10/2008 at 14:50
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Porsche .... is one of the biggest hedge funds in the world
The truth seems to be that Porsche has acted as a Hedge Fund itself to profit from other Hedge Funds.
www.ft.com/cms/s/0/9af8afdc-a524-11dd-b4f5-000077b...l
"Is Porsche a carmaker or really a hedge fund in disguise?
The question has dogged the German sports carmaker ever since it revealed that in the year to July 31 2007, it made ?3.6bn ($4.5bn) from options trading and only about ?1bn from selling cars. Add in its share of profits from VW and the revaluation of its stake in Europe?s largest carmaker and ?4.8bn of Porsche?s ?5.86bn pre-tax profits in the last full year available came from VW. Finally throw in Porsche?s drawing down of its ?10bn credit line this year because it could get better returns from investing it than the original cost of borrowing.
It all adds up to Porsche looking rather like a hedge fund ? once described together with private equity firms as ?locusts? by a leading German politician. Whether Porsche has continued in that fashion in recent days may not be known for some time. It will reveal its accounts up until July 2008 only at the end of November and later trading only next year.
Porsche itself is loath to dispute the tag too much even though its manufacturing business still has the highest operating margins of any carmaker in the world. Its head spokesman once told the FT: ?We make money from hedging and building cars. The difference is that hedge funds don?t make cars the last time I checked.?"
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"When Porsche revealed at the weekend that it had lifted its stake in VW from 42.6 per cent to almost 75 per cent using derivatives ,hedge funds panicked as it effectively cut the free float to only 5.8 per cent from 45 per cent.
Speculation also mounted on Tuesday over the exposure of banks to VW. It is assumed that many banks acted as counterparties to Porsche and have thus lost money. Unsubstantiated rumours led shares in France?s Société Générale to drop 17.5 per cent at one point with Morgan Stanley down 11 per cent and Goldman Sachs off as much as 8 per cent.
But many investors suggested there could be a bigger loser: the entire German capital markets. Shareholders are angry at how Porsche could have amassed such a high stake in derivatives without disclosing them. Klaus Kaldemorgen, the head of DWS, Germany?s largest fund manager, said it risked having systemic issues for the country: ?It cannot be that a share in a prestigious index like the Dax can rise by more than 100 per cent in one day because of the small free float.?
Deutsche Börse, the organiser of the Dax-30, said its management board was monitoring the situation closely. But an official said suggestions by one investor that VW?s ordinary shares would be forced out of the Dax on Friday ? to be replaced, ironically enough, by its preference shares ? were ?likely to be wrong?.
Further questions have been raised about Bafin, the German financial regulator. It says it is continuing to monitor the situation but hasn?t started a formal investigation.
Bafin insists Germany?s rules on the disclosure of derivatives are similar to other European countries.
Some bitter investors suggested that Porsche could also run out a loser. It is unclear how much of its 31.5 per cent stake in VW held through derivatives it will be able to convert into shares as they could be too expensive and the market too tight. It also faces some unintended consequences such as triggering an automatic bid for Scania, the Swedish truckmaker in which VW has a two-thirds stake, if it lifts its equity stake in VW above 50 per cent. Porsche did not return repeated calls for comment.
One of the few winners in the whole saga could be the government of Lower Saxony, VW?s home state, which holds a 20.1 per cent in Europe?s largest carmaker. That holding was worth ?47bn on Tuesday. "
Edited by jbif on 29/10/2008 at 15:04
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>The only thing anybody can claim to own is their own body<
That's a bit strong. I (and I suspect quite a few others on this forum) am not in hock any further than the end of the month, when I (or more accurately SWMBO) clears the credit card bill. I own my house and both my cars. As for the credit card, it would be most inconvenient to dispense with that altogether and go back to cash - buying fuel and food would be a hassle to start with.
But I agree, many people probably don't OWN very much. The recent shenanigans suggest to me that people are just beginning to realise that in the world of finance a lot of things are not what they seem.
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Certainly an interesting story, and given that VW shares closed today over 2x Friday's closing price its hard to imagine that there won't be some big losses somewhere. The share price is unlikely to go below the 200 Euro mark in the short-medium future.
Wouldn't worry too much about pension fund exposure, PF do invest in hedges, but maybe only 1-3% at most.
Its difficult to have any sympathy for HF's at all. Mostly highly leveraged, often offshore (to dodge regulation) and quite secretive. These are the guys that cheer when people lose their jobs and companies fall. Hedging has a role to play, but its become corrupted.
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Its difficult to have any sympathy for HF's at all. These are the guys that cheer when people lose their jobs and companies fall.
And in doing so make vast sums from other peoples' misery. I don't find it difficult to sympathise with them if they lose; I find it impossible.
The old adage about playing with fire comes to mind, as does the expression "poetic justice".
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Sadly most of these posts show a fundamental lack of understanding over hedge funds.
Funds are not all about short-selling, but also long purchasing.
They make money by exploiting differences in perceived short term value and expected long term value.
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What most people seem to forget about short selling is this.
Shorters have to borrow the shares to sell in the market.
Who lends them the shares ? Yes the institutions who get a fee for doing so.
Where do the institutions get the shares from ?
They buy them in the open market with their customers money, your money,pension holders money.
Who wins ?
Usually the shorters when they drive the price down and the institutions when they get their lending fee and as the fee does not form part of your pension investment, they get to keep the lot.
Who loses ? The mugs who provide the money in the first place i.e the lowly worker who hopes to have a reasonable pension after years of hard work, but you can bet your boots that their fund will not match expectations, because the share price will not have performed as well as expected.
Do the fatcats at the top care about your pension ? Does Gordy care ?
NO.
Edited by Mr.Tee43 on 29/10/2008 at 22:48
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