Well-known activist short-selling hedge funds expect to find more companies squeezed by tough economic conditions
Some $321 billion worth of U.S. and European speculative-grade debt is due for refinancing over the next 12-14 months. Defaults may double in 2023, if interest rates and corporate borrowing costs rise further, S&P Global Ratings reckons.
Here are what some prominent short sellers say about how they use forensic accounting, lessons they have learned and what they expect in 2023.Top tip: Do the numbers add up? “There’s a lot of low coupon debt to be refinanced,” Block said. He was referring to companies that borrowed at low interest rates over the last 10 years, but now face higher coupons on repayments as rates rise.
Clues that led to Muddy Waters’ most recent short included an in-person visit to the property sites of real estate investment company, Vivion, to find out if their rental properties were as valuable as the company said. One they found was “vacant and derelict,” Muddy Waters’ report about the company said. Vivion said it would respond with a further statement and that this picture was not accurate.
In coming years, British accountants could be required, under recent government proposals, to look for fraud at companies they audit. The secret to uncovering the perfect short is that shareholders need to care about your findings, said Matthew Earl, the hedge fund manager behind Shadowfall.
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