Wednesday, October 29, 2008

Poor Hedgies: Time to Trade Down to a Smorsche

There's something satisfying about go-faster hedgies taking a bath at the hands of their marque-of-choice Porsche, though I'm not sure the latter have "made a killing" as the Independent suggest. Perhaps some will have to trade down to the Smorsche (left) - a Fiat 500 pimped as 911.


Anonymous said...

So you think it's fine for a shareholder to build up rights in secret to acquire a majority stake in a publicly traded company and so, when the market turns against that company for perfecly rational reasons, he is able to declare that he has that majority stake and use his majority position to force the price up ... so long as the people whose interests are adversely affected are 'hedgies'.

This is precisely why we have rules in England & Wales to ensure that people mae declarations when they have significant stakes in publicy traded companies (admitedly different rules for listed and non-listed companies) ...

Chris Paul said...

I'm not sure I've said anything of the kind Evan? There's something satisfying about the connection is all. And also that I'm not sure how Porsche have made a load of money by buying every available share, possibly at premium prices? The shares having gone back down substantially now.

As for whether Porsche behaved properly the Independent raises some concerns but states that all is legit where they do business.

Also I think that P had 20% of shares at the start of this process and 74% at the end of it, possibly by buying 30% from another bulk holder (a LGO) and also by mopping up as much as they could that came on the market.

When they got to the notifiable amount they seem to have notified the market and that seems to have caused even more demand, with the hedgies trying to get the borrowed shares back against that back drop.

But I don't have all the info. People investing in hedge funds are mostly very wealthy and using money they can afford to lose to take high risks for hopefully high returns. VW was unexpectedly risky yesterday by the sound of it.

If what you are saying as a Tory PEPC and barrister is that markets in UK are better regulated by our Labour Govt than those in Germany are by their Conservative one, I'll certainly take that!

Anonymous said...

According to the press reports that I have read, Porsche started with around 20% of the share and options held in secret to acquire another 54 or 55% ... and the local Lande had a further 20%.

As far as the rest of the world was concerned, only 40% of the stock was owned by Porsche and the local Lande.

For many years, here in the UK, there have been rules regarding significant holdings of shares in listed companies - so that people who are considering the purchase of shares can see what they are doing - these require publicity of holdings and rights over holdings (including options).

In America, the SEC would be investigating the distortions of the market arising from the secret options that Porsche appear to have had that effectively distorted the market - so when the funds discovered that they were short selling shares over which Porsche already had options they were left scrabbling around trying to acquire shares where there were very few available ...

Are you sure that some of your pension isn't invested with one of the hedge funds that have lost money? Hedge funds may be run by rich people and some may be wholly owned by them, but since a hedge fund is merely a fund that tries to eliminate risk by 'hedging' investments, it is another fund in which many pension companies have acquired interests where they are interested in diversification of investment.

Nothing I've said was to do with Labour in Government, and I wasn't making a party political point of any sort ... if I was to make a political point, I would say that the regulation set up in the mid 80's survived 2 market crashes 2 bubbles and 1 other burst bubble ... the regulation created by Gordon Brown lasted ... well ... one boom ... and failed at the first hurdle ... oops! Of course you would retort that it wasn't fair as the bust is 'unprecendented' ... there are significant differences to all busts; but regulation should work for boom and bust ... even significant bust ... and this set of regulation is ... well to quote another Tory, Balls!

Chris Paul said...

My pension - such as it isn't - is in green stuff and safe-ish stuff. None in cars, or oil, or wars, or pharma. And as you may recall Tories have been pressing for deregulation.

Your figures seem about right and I think I was wrong to think that Porsche were out buying lots this week. Though I'm not sure when their options and swaps were arranged.

Porsche seem to still have just 30% or thereabouts but have optioned swaps or purchases giving them increases to 50% in December and later 74%. Leaving only 5% or so are in play.

If these moves are within the rules in Tory Germany then the "experts" in the Hedge Funds ought to be aware of that risk really. Or could it be that it has been chancers that have got their fingers burned?

Anonymous said...

Investors of all sorts depend on the honesty of the systems they invest in ... I was aware of difficulties investors had with the German regulatory model but wasn't aware that the German system allowed shareholders to build up options in secret - something that would enable a majority shareholder in effect to hold other investors to ransom - which is what Porsche has done.

On the whole, hedge funds are not run by 'chancers' but by people who are trying to avoid the negative outcomes for their investments - so they invest in widgets and invest in contra-widgets so that if there is a turn against widgets, their investment in contra-widgets will avoid the worst aspects of that turn. A classic example of this sort of activity is when manufacturing companies invest in currency futures in order to 'hedge' the risk of currency fluctuations.

As to whether the individual hedge funds should have been aware of the German regulatory position - you have a point - but it does seem to me that Porsche cannot escape criticism for exploiting its secret power over VW.

Nothing, as ever, is straight forward. When looking at the regulatory structures, you can guarantee that there will be pressure on Germany to adopt similar rules to those that apply in the UK and USA with regard to options - and these will come from sensible investors as well as sensible lawyers from many different political persuasions.

As to deregulation - no-one is calling for an abanondment of regulation - what Conservatives here are calling for and have been calling for for a while now is effective regulation that has as limited impact as is necessary to achieve a proportionate aim - in the UK we established the Board of Trade in the 17th Century in part to regulate trading positions and attempt to ameliorate the worst excesses of the market - the regultory failure that has led to the current difficulties in the UK is a result of internal failure at the FSA which has, in part, been recognised by its current head, Lord Turner and in part down to the regulatory structure created by the part release of Government control over the Bank and elsewhere including in the Financial Services and Markets Act 2000 - the 'innovation' of Gordon Brown and Ed Balls which they appear to have believed, until the current crisis, meant that they had abolished the economic cycle!

Chris Paul said...

I don't think anyone really thought they had abolished economic cycles, just produced a kind of Aristolean mean oscillating round a generally happy and strong upward trend. Ameliorating. And for the past 11 years we have suffered less I think than other economies.

The mass media coverage is horrible. From the BBC downturn graphics showing a vertical plummet - or DONWTURN as one of their captions said today - to the rest of the doom and gloomists. And few of them capable of passing Econ 101.

Anonymous said...

We all need to bear in mind that what we say (or write) will come back to haunt us at some stage or other ...

The problem with pretence and spin is that sometimes you believe what you are saying - I believe that Runciman has a name for it but I haven't read his book about hypocrites yet.

As to how we have ridden the wave for the last 11 years; that's a whole other debate ... perhaps I'll blog about it.

Anonymous said...

BTW; I am increasingly convinced that economics is more about argument that empirical facts. The difficulty is that as soon as you concentrate on one factor, the other factors change, leaving your calculations to be recalculated in the dynamic world we live in. I shall probably be castigated by economists ... but there we have it.