As the FT reporters who kept the pressure on Wirecard in the face of legal threats, covert hacks, aggressive surveillance and other intimidation tactics (Germany’s financial regulator BaFin even launched an investigation into FT reporter Dan McCrum over allegations that he was “collaborating” with short sellers) pop the bubbly in celebration, a handful of prescient short-sellers who remained steadfast in the face of the company’s aggressive defense are reaping tremendous profits.
The investing community is still trying to parse how the blatant fraud at Wirecard managed to escape their notice even in the face of intense scrutiny, both WSJ and the FT have published stories about the winners and losers on the buyside.
As we noted earlier today, the investors who made the ‘real killing’ on Wirecard’s collapse are those who bought the insurance against its bonds. Shortsellers who bet directly against the stock, or loaded up on put options, still saw their gains capped (for shortsellers who are borrowing and selling the shares, their max return without leverage is 100% – borrowing costs). Holders of Wirecard CDS saw the spread blow out from just over 500bps (or 18 points up) two weeks ago to 8600bps, or roughly 73 points upfront, at the end of the week.
While we imagine at least some savvy retail traders also made a decent profit off any bets against Wirecard, the success of the CDS trade means mostly institutions probably benefited, and it even begs the question of whether more funds might start focusing on CDS spreads instead of trading equities during the coming months.
Still, WSJ calculated that the biggest hedge funds betting against Wirecard’s stock (via shorts and via options) probably made a total of $1 billion between just a handful of firms.
One of those firms is Safkhet Capital Management, a boutique hedge fund based in New York that’s run by Fahmi Quadir, a 29-year-old PM and one of the most promising female up-and-coming managers in the small but widely respected community of shortsellers.
Some funds that started betting against Wirecard more than a decade ago never made it to the payout (they were likely forced to fold when the German government explicitly backed Wirecard in its battle against the short sellers, a decision that looks extremely questionable in retrospect). Fortunately for Quadir, who had 25% of her fund’s capital dedicated to a bet against Wirecard, she managed to get the timing just right.
The hedge fund PM, whose net worth is reportedly close to $100 million, reportedly made her bones in the industry with big bets against Valeant and Tesla that paid off when both those stocks crashed (though Tesla has since regained its footing in a big way).
Quadir launched her boutique fund in January 2018 to much fanfare after her research was publicly praised by storied short seller Marc Cohodes, according to Bloomberg.
Prior to this, she had been an analyst at Copper River Management, and an equity analyst for Krensavage Asset Management, a New York-based firm that makes long and short wagers on stocks, with a focus on health care.
According to public securities filings like its form ADV, Safkhet has somewhere between $25 million and $100 million in capital, qualifying it as a boutique. But with the Wirecard profits, her capital may well grow along with her reputation as wealthy investors look for more discerning managers who can generate better value now that gangs of Robinhood day traders are outperforming GSAM.