Hedge funds cry foul over Churchs attack on short selling

Date: Friday, September 26, 2008
Author: James Mackintosh, Kate Burgess and Jimmy Burns, Financial Times

Hedge fund managers reacted with fury yesterday to an attack on short selling and debt trading by leaders of the Church of England yesterday, pointing to the contradiction between what they say and how they invest their vast assets.

Rowan Williams, the archbishop of Canterbury and head of the Anglican church, said it was right to ban short selling, while John Sentamu, archbishop of York, called traders who cashed in on falling prices "bank robbers and asset strippers".

Hedge funds and religious critics pointed to the willingness of the Church commissioners to lend stock from their 5.5bn ($10.1bn) of investments - a key support for short selling - and derided the pair for not understanding the role of shorting.

"They are trying to shoot the messenger and they are massively deflecting attention away from the dramatic incompetence of bank executives," said Hugh Hendry, co-founder of Eclectica Asset Management, a London hedge fund. "Short selling is the pursuit of truth."

Short sellers, particularly hedge funds, aim to profit from falling prices, and have been widely blamed in the popular media for the fall in shares of banks such as HBOS. Hedge funds deny responsibility, pointing to evidence suggesting the main reason prices fell was panic selling by investors.

As well as aiding shorting by lending stock, the Church Commissioners had 13m invested in Man Group, the largest listed hedge fund manager, at the end of last year. The commissioners also sold a 135m mortgage portfolio last year, according to their annual report, in spite of Dr Williams' criticism of trading debts exclusively for profit.

Through the Church of England Pensions Board, which manages another 551m, the Church invested this year in a fund from Auriel Capital, a London hedge fund, which aims to make money from currency trading - including short selling currencies.

Andrew Brown, secretary to the commissioners, said they did not invest in Man's products, only its shares, and none of their managers used shorting. "We can assure you that the ommissioners' stocks have not been used to facilitate the shorting of financially vulnerable institutions in the US and UK, including HBOS," he said. "Nor will this happen."