Hedge funds short UK asset managers

Hedge funds have taken out multimillion-pound bets against the shares of some of the UK's largest assets managers, wagering that their value will fall because of exposure to vulnerable emerging markets.

Shares of investment groups Aberdeen Asset Management and Ashmore have been weighed down by growing worries over their business models.

Funds including Odey Asset Management and Marshall Wace have built up large so-called short positions - effectively bets that shares will fall in value - against their traditional asset manager cousins in recent months.

Ashmore and Aberdeen's woes have centred on their exposure to the emerging markets as these regions have underperformed since the US Federal Reserve sparked the first "taper tantrum" in May 2013 when it signalled the possible end of quantitative easing.

Investors concerned about slowing growth in emerging markets often look for western proxies that can provide immediate returns. Last year, hedge funds shorted iron ore producers as a way of betting on lower demand in China. The investment managers appear to be the latest target.

Odey, which is run by the London hedge fund manager Crispin Odey, has built up a 6.45 per cent short position in Ashmore, the emerging markets-focused fund manager, and a 1.5 per cent short in Aberdeen Asset Management, according to regulatory disclosures.

Odey's bet against Ashmore, based on its £2.1bn market value is worth about £135m, and just under £100m against the £6.5bn valued Aberdeen, based on the companies' most recent closing prices.

Marshall Wace, one of London's largest hedge funds, holds an 0.6 per cent short against Aberdeen, while Discovery and AQR, both US funds, are also betting against the company.

Ashmore, in particular, has suffered as it is a specialist emerging market fund manager with the bulk of its assets in debt. Ashmore's shares have fallen 30 per cent since May 2013.

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Aberdeen has high exposure to emerging markets with 60 per cent of its revenues coming from its three so-called blockbuster products of emerging market equities, Asia-Pacific equities and global equities.

Aberdeen's share price has been very volatile over the past two years, while it has suffered large outflows of more than £25bn since the end of the second quarter of 2013.

Several analysts have downgraded Aberdeen's shares in recent weeks because of worries that expected US interest rates this year will cause more volatility in the emerging markets.

Another UK investment group targeted by short sellers is the consumer-facing funds platform Hargreaves Lansdown, of which AQR holds a 1.1 per cent short position against.

Shares in Hargreaves Lansdown have dropped more than 20 per cent since they peaked in January 2014. This is because of worries that Hargreaves' profit margins will suffer as UK regulatory reforms bite.

The UK's Retail Distribution Review regulations mean online platforms such as Hargreaves must explain more clearly the way they charge customers, which has raised the prospect of some clients switching to rivals as they question fees.

Some investors also say that Hargreaves, which has an estimated 32 per cent share of the UK retail financial services market and more than £49bn under management, will struggle to grow and expand its business further.

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