Businessweek has an interesting piece on how PE and turnaround funds are making life difficult for short-sellers:
But as short-selling has proliferated, it has become increasingly difficult to make money at the game. Whereas a profit-challenged enterprise may once have floundered until shutting down or filing for bankruptcy, many such companies are now targets for private equity firms that style themselves as turnaround artists (see BusinessWeek.com, 10/8/06, “Private Equity Keeps Booming”). What’s more, such firms are often willing to pay a rich premium to the market price for troubled outfits in which they see promise.
As a result, fewer companies work as successful short plays, and the strategy has soured for many. The sector is down 7.56% for the year, according to Ken Heinz, president of Chicago-based Hedge Fund Research. “We are hearing from hedge fund managers that it’s getting harder and harder to make money on the short side,” says Robert Discolo, head of hedge fund strategies at AIG Global Investment Group.
- Mary Meeker’s 2014 Internet Trends report - May 28, 2014
- Andreessen-Horowitz raises $1.5B for its new fund - February 1, 2012
- WestBridge launches India “evergreen” fund - November 15, 2011
There have been some interesting videos that talk about how the shorts had manipulated market prices, which (shameless plug coming up) I had written about:
http://blog.investraction.com/2007/05/market-manipulation-by-smart-money.html
In the US there can be naked shorts in the market (selling without owning the underlying or even borrowing them) that can be greater than the floating stock and sometimes the total known stock of hte company! Certain specific rules allow shorts to be totally unregulated as mentioned here:
http://www.ncans.net/intro%20to%20naked%20short%20selling.htm
I guess what PEs are doing now looks like justice to those tormented by the naked short sellers.
I’m happy we don’t have this kind of stuff in India now – naked shorting are not allowed regardless; at this point, even futures/options have marketwide limits on open interest (as a % of total equity available).
I