Surfer’s US hedge fund bails out of Sainsbury’s bet after shares spike

AN American hedge fund controlled by a billionaire surfer was forced to give up on its huge bet against Sainsbury’s after the grocer’s shares soared last week.

Third Point – controlled by Dan Loeb, a Wall Street hedge fund manager, surfer and philanthropist – was stung when Sainsbury’s shares soared 15 per cent to £3.40.

The rise was driven by rumours that US private equity buccaneer Apollo was weighing a takeover bid of more than £10billion.

Data shows Third Point closed out its entire ‘short’ position in Sainsbury’s, meaning it is no longer betting on the share price falling.

It was one of several hedge funds that scaled back their bets.

Short-sellers borrow shares from other investors for a fee, and sell them on the open market. They then hope to buy back the stock at a lower price and pocket the difference when they return the shares to the original owner.

According to the Shorttracker website, 4.1 per cent of Sainsbury’s shares are on loan to short-sellers.

Earlier this year, Sainsbury’s was one of the top five most shorted companies in the London market with 9.5 per cent of the company’s shares on loan to short-sellers.

There are now only four investment firms that have disclosed short positions in Sainsbury’s. They include BlackRock and Marshall Wace, the hedge fund set up by tycoon Sir Paul Marshall, a Brexitsupporter and financial backer of Right-wing news channel GB News.

According to Shorttracker, Third Point – which manages over £10 billion – closed its short position in Sainsbury’s on August 23, the same day its shares rocketed.

Loeb set up Third Point in 1995 with $3million following a career on Wall Street. The fund’s core investment strategy is ‘activism’ – buying stakes in troubled firms, replacing inefficient management teams and trying to return the businesses to success.

The fund – named after a surf beach in California near where Loeb grew up – has previously taken sizeable stakes in Yahoo, Sotheby’s and Nestle.

City sources said it’s unclear whether Third Point began closing its short position before rumours began circulating last weekend about Apollo’s interest in buying Sainsbury’s. Short-sellers are estimated to have lost £62million from Monday’s share price spike.

Brokers said some of the shortsellers may have ‘covered’ their bets by buying back shares in the market, which would have contributed to Sainsbury’s share price surge on Monday.

However, that may have been a premature move, as sources close to Apollo poured cold water on reports it is interested in buying Sainsbury’s, saying the buyout firm is still focusing on its talks with the SoftBank-backed Fortress consortium over its £9.5billion takeover tussle for Morrisons.

But speculation has been mounting about a potential bid for Sainsbury’s ever since Daniel Kretinsky, a secretive investor known as the ‘Czech Sphinx’, began building a large shareholding in the firm. He owns almost 10 per cent of it, which equates to around £100million.

Sainsbury’s has received several takeover approaches in the past, including one from the Qatar Investment Authority. It once held a 30 per cent stake, but that is now down to half that figure.

By Friday, Sainsbury’s had given up some of Monday’s huge gains and closed at £3.10.