Section:GDN 1N PaGe:30 Edition Date:190808 Edition:01 Zone:S Sent at 7/8/2019 20:05 cYanmaGentaYellowb
- The Guardian Thursday 8 August 2019
(^30) Financial
Business view
Nils Pratley
M
uddy Waters
is a splendid
name for a
short-selling
hedge fund that
claims to spot
accounting shenanigans at listed
companies. Carson Block , the main
fi gure, doesn’t get it right every
time, but he has a big following.
That partly explains the
thumping 46% fall in Burford
Capital’s share price yesterday
as one of the hottest stocks on
London’s Alternative Investment
Market received the Muddy
treatment. Over 24 pages, the
hedgie alleged “aggressive”
accounting practices.
Burford Capital reacted with
fury and, perhaps inevitably for a
company that makes its living byfunding other people’s court cases,
said it had summoned lawyers and
experts to investigate whether there
was “market manipulation”.
It should calm down. Grumbling
about short sellers is pointless.
These creatures may be unlovely
but they’ve always been part of the
stock market. The only eff ective
defence is point-by-point rebuttal.
Burford says a detailed response
will follow, and so it should. In April,
the broker Canaccord, which is not
in the shorting game, highlighted
20 “under-appreciated” areas of
concern for Burford investors. It
acknowledged the company was
generating “attractive” returns
from its “impressive market leading
position” but challenged the claim
of an 85% return on invested capital.
In other words, some of theaccounting questions are not new.
Burford can say it’s had a clean audit
from Ernst & Young every year since
2010, but it can’t expect to settle the
debate so easily. In the weird world
of litigation funding, companies
ascribe a present value to ongoing
court cases, which leaves room to
debate delicate areas such as cash
returns versus paper profi ts.
Sir Peter Middleton, a former
chairman of Barclays, chairs
Burford and should know the form.
Maximum disclosure plus full
engagement is the only option.Hargreaves overhaul
Hargreaves Lansdown’s bosses will
no longer defend the indefensible.
Four top executives, including
the chief executive, Chris Hill,
and the research director, Mark
Dampier, won’t get a bonus this
year , presumably to avoid further
enraging clients locked into Neil
Woodford’s gated investment fund.
Better late than never, of course,
but Hill’s previous stance on
personal bonuses was ridiculous. He
had wanted to defer his payment,
and by implication those of his
senior colleagues, until Woodford
is able to reopen his Equity Income
Fund. Put another way, Hill & Co had
intended to wait until the noise dies
down and then take a full bonus.
Now that a degree of reality has
arrived in the boardroom, Hill needsto use today’s results statement to
explain what Hargreaves thinks it
got wrong in its relationship with
Woodford. It’s been hard to tell.
We’ve heard a general apology to
the locked-in Woodford investors,
accompanied by a waiving of
Hargreaves’ fees on the frozen fund
(but not on the multi-manager
funds that include Woodford). But
Hill still struggles to acknowledge
Hargreaves’ role as cheerleader
for Woodford, a point that is
screamingly obvious to outsiders.
If Hill wants to show he has
learned something from the fi asco,
he should order an overhaul of
Hargreaves’ infl uential Wealth 50
“best buy” list, which is pitched as
a piece of independent research but
reads more like a collection of puff
pieces for supposedly “star” fund
managers. This same mindset, one
suspects, led Hargreaves to swallow
its concerns about the number of
illiquid holdings in Woodford’s
portfolio and keep the “best buy”
sticker in place.
“The shortcomings of one fund
should not detract from the benefi ts
of favourite fund lists like the
Wealth 50,” Hill has said. Well, yes,
punters like recommendations. But
they also expect to read healthy
scepticism. That quality has always
been hard to spot in Hargreaves’
“research”. After the shocker with
Woodford, it is desperately needed.Grumbling about
short sellers is pointless.
These creatures are
unlovely, but they have
always been part of
the stock market▲ Carson Block,
the founder of the
US hedge fund
Muddy WatersDisclosure is the only defence
as Burford is caught short
in a swirl of Muddy Waters
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