Hedge funds ‘net £200m from firm’s demise’

HEDGE funds were estimated to have made as much as £200million betting on the demise of Carillion.

While banks and rival firms were nursing huge losses, traders have been heavily shorting the stock – meaning they make money when the shares fall in value or the firm collapses – since well before last year.

Carillion has been one of the most bet-against stocks on the market, with around a quarter of its shares held by short- sellers. Between July and last Friday, its share price fell more than 90 per cent, sending its stock market value from just over £1billion to around £61million before the firm collapsed.

Hedge fund Marshall Wace was one of the biggest winners immediately after the firm’s disastrous trading update in July, pocketing a paper profit of £19.1million in just three days.

The fund was co-founded in 1977 by Brexit-backer Sir Paul Marshall, 58 – whose son Winston is a member of folk rock group Mumford and Sons – and Ian Wace, 54. The pair have an estimated wealth of £505million.

Thunderbird Partners, founded by trader David Fear, 49, are estimated to

‘Heavily shorting the stock’

have made £14.5million during the period of Carillion’s fall. And Naya Capital, founded by former Goldman Sachs banker Masroor Siddiqui, 46, in July 2012, made £7.6million as the share price plunged more than 70 per cent within a few weeks.

While many hedge funds cashed out and pocketed profits between July and yesterday, 12 hedge funds were still shorting the stock as of Friday, allowing them to clean up when the firm went into administration yesterday.

BlackRock, the world’s largest fund manager which manages more than £4.1trillion, had a short position as of last Friday. Mayfair-based Rye Bay Capital, founded by former HSBC banker Daniel Martin, 54, also had a short position yesterday.

Under short-selling, the trader borrows shares from a broker and sells them on at current market price. They then wait for the price to fall as predicted, before buying the shares back and handing them back to the broker.

The trader therefore pockets the amount by which the price has fallen, minus any borrowing costs. If a firm has gone into administration, the shares become worthless. The hedge fund does not have to return them to the lender, but still has the cash from when it sold them on.