Hedge fund bet on Glencore backfires with $100m loss

Glencore CEO Ivan Glasenberg. (Image from archives)

* Lansdowne Partners loses $100 million from short in 2017

* Glencore stock up 29 percent so far this year

* Viking, Discovery, Passport abandoned shorts in 2016 – filings

By Maiya Keidan and Barbara Lewis

LONDON, Nov 17 (Reuters) – London hedge fund giant Lansdowne Partners lost $100 million from a long-term bet against Glencore this year after the spectacular recovery of the miner took some by surprise.

For Lansdowne, that bet had generated returns in 2014 and 2015, when Glencore more than other major miners was dragged down by falling commodity prices and concerns about its level of debt.

But so far this year, Glencore’s shares have risen 29 percent, from 278 to 354 pence, making it the top-performing global miner.

Filings with British regulator the Financial Conduct Authority (FCA) showed Lansdowne was borrowing more than 0.5 percent of the stock on the expectation the price would fall – a tactic called “shorting” – between July 2014 and August 2017.

During 2017, Lansdowne’s shorts in Glencore cost it 76.23 million pounds ($100.58 million), Thomson Reuters Eikon data showed.

“People were extremely bearish and extremely confident that they had been right on the way down.”

A spokesman at Lansdowne declined to comment on why the hedge fund continued to hold a short throughout 2016 and 2017, during which time investors regained faith in Glencore from its decisive action in late 2015 to restructure its debt and the sale of some assets.

“A lot of people were really against Glencore (in 2014/2015),” said David Neuhauser, founder and managing director at Livermore Partners, which invested $2.6 million in the stock in September 2015 when the shares fell to 70 pence each and generated returns of $3.12 million to date.

“People were extremely bearish and extremely confident that they had been right on the way down.”

Back in 2015, large hedge funds Viking Global Investors, Passport Capital and Discovery Capital had joined in the short, riding a 2015 fall in Glencore’s value from 278.9 pence a share to 89.8 pence per share.

All had largely bailed out of the trade by July 2016, FCA data showed, avoiding a 68.1 percent bounce back in Glencore stock that year. That left Lansdowne the only fund with a short position above a 0.5 percent disclosure threshold in 2017.

Spokespeople at Viking, Passport and Discovery declined to comment when contacted by Reuters.

Total short positions in Glencore stock in 2017 remained far below 2016 levels, data from industry tracker FIS’ Astec Analytics showed, with just 2 percent of the stock available to be lent on loan at Nov. 15, from a high of 20 percent in 2016.

But Glencore’s debt is still high relative to some peers and the company has a history of making debt-fuelled acquisitions.

It is also the world’s biggest shipper of seaborne thermal coal, which many countries are trying to replace with greener fuels for electricity generation, and has a major presence in countries with a high degree of political risk.

A majority of analysts rate Glencore a buy, but analysts at Liberum boutique investment bank have downgraded the stock to sell from hold.

They still rate it the “top pick in the majors” as it has minimal exposure to iron ore and coking coal, vulnerable to the knock-on effects of an oversupplied steel sector.

In a note announcing the downgrade, Liberum cited “the increasing risk of negative earnings momentum in the months ahead on falling copper and coal prices”. ($1 = 0.7579 pounds) (Reporting by Maiya Keidan; Editing by Dale Hudson)