Lansdowne, one of the world’s biggest hedge fund firms with around $ 20 billion in assets under management, has been betting against Glencore’s shares for three years or more, according to regulatory disclosures.
It benefited from their steep fall in the second half of last year on worries about the company’s debt levels.
This year the mining giant’s shares have come roaring back. They are up around 130% this year to £2.12. And this has hurt those hedge funds that continue to hold a ‘short’ position and bet on a price fall.
Since the start of the year Lansdowne has lost approximately £250 million ($ 326 million) on the position, according to calculations by The Wall Street Journal based on regulatory disclosures and closing share prices.
A spokesman for Lansdowne declined to comment.
Based just off London’s expensive Berkeley Square, the media-shy investment firm has made double-digit gains in each of the past four years in its flagship Developed Markets fund, run by Peter Davies and Jonathon Regis.
This year to September 16 it is down 13.2% after a series of missteps.
Lansdowne’s most recent letter to investors, reviewed by the Journal, showed its main fund was running a bet against shares in the basic materials sector.
Overall hedge fund bets have come down sharply this year as Glencore’s shares have recovered and are now at less than one-third of the levels seen in February, according to data group Markit.
The rise in Glencore’s share price this year has been driven by rising commodity prices, particularly in zinc and coal. The company has also taken steps to cut its debt burden. This year’s rise marks a revival in fortune. On September 28, 2015, its shares fell 29% in one day, to 69 pence, because of concerns it would struggle to pay down almost $ 30 billion in net debt. The company’s stock had been steadily declining since its initial public offering price of 530 pence in 2011.
Glencore responded to investor concerns by announcing a raft of measures to cut debt, including an equity issue, dividend suspensions and billions of dollars in asset sales. The plan is bearing fruit, with analysts expecting net debt to drop to well within the company’s guided range of $ 16.5 billion to $ 17.5 billion by year-end, down from $ 23.6 billion at June-end and $ 29.6 billion a year before then.
Rising commodity prices have also been a boon to earnings. As the world’s largest exporter of thermal coal and zinc miner, Glencore has benefited from the rise in zinc and coal prices, two of its key earnings drivers.
Write to Laurence Fletcher at firstname.lastname@example.org
This article was published by The Wall Street Journal