Last men standing: The short sellers left after Hindenburg’s exit
Nate Anderson is going out ‘on top’ according to one rival as challenges mount
Nate Anderson, the founder of Wall Street’s top activist short seller Hindenburg, announced this month that he was hanging up his boots. He is just the latest high profile investor to call it quits.
Anderson, who was best known for betting against electric-vehicle manufacturer Nikola, Carl Icahn, and India’s Adani Group, blamed the “intensity and focus” of the job.
But activist short selling, where investors bet against companies and mount highly public campaigns, has become harder in a powerful bull market that many in the business say has made it difficult to generate returns.
Even non-activists shorts have struggled: Jim Chanos shut his main short-focused hedge funds in 2023 after more than three decades. Bill Ackman, another high-profile investor who used to take both long and short positions, said in 2022 that he would stop running public campaigns.
“Usually when people exit the short selling business it’s because they have had significant failures or reversal of fortune,” said fellow short seller Carson Block of Muddy Waters. “In Nate’s case he is going out on top.”
Sued by company executives, shunned by banks who are afraid of jeopardising client relationships, and investigated by regulators, activist short selling can take a toll on its practitioners.
“Companies used to be very shy litigating against short sellers, but now they are less shy,” said Gabriel Grego, founder of hedge fund Quintessential.
In a post on X last week, short seller Matthew Earl of ShadowFall jokingly referred to the strategy as involving “excruciating masochistic pain in the hope of then looking quite the man about financial town sometime later”.
Some short sellers have come under fire for the arrangements through which they finance their positions.
The Department of Justice last year accused Citron Research, and its founder Andrew Left, of concealing “financial relationships” with hedge funds and running a “market manipulation scheme”. Left responded on CNBC that “everything’s disclosed. I have disclaimers, the same disclaimers that every other activist, short seller, newsletter writer [has]”.
Anderson’s exit leaves a cottage industry of specialists that have tried to adapt with varying degrees of success.
Some investors argue that their reports need to be sharper and better evidenced to have a hope of impacting a company’s stock price, especially in markets dominated by passive investing and trading algorithms.
Most short selling takes place within general long-short equity hedge funds, who more often buy companies than bet against them. This business, too, has been getting tougher: investors have been pulling money from the strategy in recent years.
These are some of the short sellers still standing.
Carson Block: Muddy Waters
With Anderson exiting the stage, Carson Block’s Muddy Waters is now Wall Street’s best known activist short seller, having taken down a number of high profile frauds.
Block began his short-selling career by focusing on Chinese companies with a listing in the US and Canada, with his hedge fund’s name derived from a Chinese proverb: “muddy waters make it easy to catch fish”.
His big break came in 2011 when he released a scathing report alleging fraud at Chinese forest plantation company Sino-Forest, which later collapsed into bankruptcy. The report caused about $460mn in losses for funds managed by US billionaire John Paulson and established Block as a short to watch on Wall Street.
He has long since diversified into bets against Western companies, including FTSE 100 healthcare group NMC Health which collapsed into bankruptcy in 2020.
Muddy Waters has kept its aggressive reports public, as opposed to some of its peers that have adopted a lower key approach.
Matthew Earl: ShadowFall
Matthew Earl, managing partner of London-based hedge fund ShadowFall, is known for being one of the first short sellers to raise concerns over fraud and money laundering at German payments processor Wirecard.
He first made a name for himself over a decade ago as a bank analyst, releasing a critical report of outsourcing company Connaught, with its chief executive calling his work a “masterful feat of incompetence”. The company filed for bankruptcy less than a year later.
In 2016 under the pseudonym Zatarra Research, Earl and fellow short seller Fraser Perring anonymously released a report on Wirecard which brought attention to money laundering and fraud. Wirecard responded by threatening him with legal action and hiring an Israeli private detective to try to hack his computer.
Nicknamed the “dark destroyer”, Earl set up his short-selling hedge fund ShadowFall in 2017, and now manages over $250mn. Aided by four analysts, Earl targets European mid-caps he deems to be overvalued but no longer publishes reports.
The firm used to have a research arm that published reports for a paying client base, but this was spun out as a new entity called Dragoneye Research.
Gotham City Research / General Industrial Partners
Short sellers Dan Yu and Cyrus De Weck joined forces in 2022 to launch a new hedge fund dedicated to short selling, with a particular focus on finding companies that mislead the market, including companies with allegedly questionable accounting.
Dan Yu, of Gotham City Research, and De Weck, of Portsea Asset Management and subsequently General Industrial Partners, each had over a decade of short selling experience under their belts, both having previously bet against collapsed companies Wirecard and South African retail group Steinhoff.
Yu was known for his successful short-selling campaign against Spanish WiFi provider Let’s Gowex, which filed for bankruptcy in 2014 having admitted that its founder had falsified company accounts. De Weck made a successful bet against collapsed FTSE 100 healthcare operator NMC Health.
Gotham City Research is the duo’s outlet for reports, while General Industrial Partners deals with the management of the investments, around $70mn according to one person familiar with the matter.
Their report last year against Spanish pharmaceutical company Grifols caused its share to fall by a third, but also attracted a lawsuit from the company and an investigation by Spanish authorities.
A separate US SEC investigation into the two firms concluded without action, according to a letter sent on November 6.
Yu and De Weck work alongside two other analysts.
Quintessential/ Gabriel Grego
Gabriel Grego’s Quintessential is akin to a more conventional hedge fund that both buys and bets against stocks. Unlike conventional hedge funds though, New York-based Quintessential publishes detailed reports against the companies it is shorting, and has rooted out some high profile frauds.
Quintessential is perhaps best known for its bet against Greek jewellery chain Folli Follie, alleging that the company was falsifying a significant proportion of its sales in China. Five of the company’s top executives were given multiyear jail sentences last year.
Gabriel Grego started his hedge fund in 2013, having worked as an investment banker and managed money for friends and family. Quintessential publishes far fewer reports than its competitors. But it has a high hit rate, with four of the nine companies it has targeted going to zero.
Quintessential used to primarily focus on short positions, but increasingly the majority of the fund’s positions are stock purchases.
Hunterbrook
Hunterbrook is an unusual combination of a journalistic venture with a hedge fund, initially conceived as a way to fund investigative journalism in a social media age that has not been kind to the industry.
Launched by investor Nathaniel Brooks Horwitz and writer Sam Koppelman in April last year, Hunterbrook has a team of journalists who publish investigations into companies. An affiliated hedge fund reads the articles and can take long or short positions ahead of time.
However, unlike other journalists, Hunterbrook’s newsroom is tasked with only using publicly available information to avoid falling foul of US securities law. The firm hired former US Securities and Exchange Commission lawyer Fitzann Reid to decide if an article from the newsroom should be shared with the hedge fund ahead of publication.
Hunterbrook raised over $100mn for its hedge fund last year. It is one of the few new high profile entrants into the short-selling space in recent years.
