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US hedge fund in anonymous bet against Tesco shares

By Miles Johnson From Financial Times UK

A $20bn New York hedge fund is using an offshore shell company to anonymously bet against the shares of the UK supermarket Tesco, raising fresh questions over the efficacy of European short selling disclosure rules.

Tiger Global, one of the world’s largest hedge funds, has made use of a Cayman Islands-registered vehicle called Delores Holdings Ltd to make a short bet against close to £100m of Tesco shares, according to people familiar with the situation.

The use of a shell company that sidesteps Europe’s rules that force hedge funds to disclose their identity when selling short more than 0.5 per cent of a company’s share capital is within the letter of a regulation that was introduced during the financial crisis.

The trading follows Tiger Global having used a set of Cayman-registered shell companies to sell short European companies between 2012 and 2014.

The names of the Cayman-incorporated shell companies included European-style corporate suffixes, such as NV, GmbH and Ltd.

Tiger Global, which manages $20bn in assets, half in venture capital and half in public securities, declined to comment. Tesco declined to comment on the Delores Holdings Ltd short position in its shares.

Tiger Global, which also used the Delores vehicle to bet against the Spain-listed DIA supermarket, has for several years employed a highly successful strategy of taking large stakes in disruptive ecommerce companies, notably Amazon, and selling short the companies they are disrupting.

The Financial Times could find no other evidence in regulatory filings of other hedge funds making use of a similar structure to make short bets in Europe.

The European Securities and Markets Authority, the regulator responsible for the regulation, said there was “no specific provision in the short selling regulation regarding special purpose offshore structures used to enter into a short sale”, and that underlying holders of positions were under “no obligation” to inform national European regulators of their identity.

EU lawmakers have called for the closure of the “loophole” in declaring short positions through shell companies.

Both the UK’s Financial Conduct Authority and Spain’s CNMV declined to comment on whether they were aware of who ultimately was in control of the Delores shell company that had reported the short positions to them.

Cyrus Pocha, a senior associate at Freshfields, said: “If hedge funds are allowed to take these short positions, why would they be trying to hide their identities? Are they worried that others will use knowledge of their positions for their own benefit?

“There is a general concern about others getting insight into their trading strategies when short selling in Europe,” he added.

Tesco shares have fallen 17 per cent since Tiger Global’s Delores vehicle disclosed its bet against the company in early January, meaning the hedge fund’s profit on the trade so far is likely to be in the tens of millions of pounds.

They fell sharply last Friday when Amazon announced it was buying the upmarket bricks and mortar food retailer Whole Foods, in a move interpreted by the market as a worrying challenge for traditional supermarkets on both sides of the Atlantic.

Copyright The Financial Times Limited 2017. All rights reserved.
IMAGE: Tiger Global has made use of a Cayman Islands-registered vehicle to make a short bet against close to £100m of the supermarket’s shares © Getty

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