UniSuper lending stock to short-sellers again

UniSuper has quietly reinstated the stock lending program it shut down in early 2020 when markets went into panic mode.

John Pearce, CIO of UniSuper. Hollie Adams/The Australian

UniSuper has quietly reinstated the stock lending program it shut down in early 2020 when markets went into panic mode over the coronavirus pandemic.

The $90bn industry super fund, which manages the savings of university staff, brought back the program, which lends stock to short-sellers, late last year, a UniSuper spokesperson confirmed to The Australian.

“We reinstated (the program) in the fourth quarter last year when we were suitably comfortable that the market was back to normal,” UniSuper chief investment officer John Pearce said.

In a move that enraged hedge funds at the time, the super fund, one of Australia’s largest, last March instructed its custodian to suspend its stock lending program effective immediately and recalled all shares on loan.

Hedge funds rely on stock lending programs to bet against companies: these funds borrow the shares from investors and sell them in the hope of buying back the stock at a later date at a lower price. The hedge funds then pocket the difference.

“In a normally functioning market we’re comfortable lending our shares as we genuinely believe that it adds to market efficiency,” Mr Pearce said at the time.

“The ability to short-sell adds to liquidity and price discovery in an orderly market. However, we are now in a market gripped by panic and we believe that restricting the ability to short-sell is in the best interest of promoting a more orderly market.”

Since it reinstated its lending program, short-sellers in the US have been under attack by an army of retail traders determined to inflict pain on the industry by pushing the price of shorted stocks sky high.

US-listed GameStop has been among the handful stocks to see blistering gains through the short-squeeze attack, jumping for $US18 a share at the start of January to a high of $US483 later that month. But this week the sharp price rises, fuelled by reddit users, reversed in earnest, with the stock dropping back to $US90.

US hedge fund Melvin Capital Management, which was among the GameStop short-sellers, suffered a 53 per cent loss in January and got a $US2.8bn bailout from hedge funds Citadel and Point 72.

The short squeeze attack has made it harder for short-sellers to bet against companies, as they fear being targeted by the day traders army, hedge funds have warned.

Speaking to The Australian, Bronte Capital founder John Hempton said the past month had been “the worst in history for the long/short community and particularly bad for the short community”.

“What’s happening is really tough and it’s a threat to the existence of many short funds. It certainly makes me reconsider ever wanting to be public on a short. There’s no reason to be targeted,” he said.

Mr Hempton is well known for his role in exposing widespread fraud at Valeant Pharmaceuticals. He made millions of dollars by shorting the stock between 2014 and 2017, before its price ­collapsed.

“The criticisms I once made about Valeant, I would not make them in this environment,” he said.

“This is the biggest gift to fraudsters of my lifetime,” Mr Hempton said.

But Mr Pearce downplayed the impact of the Reddit revolt.

“The US situation is very company specific. A lot of noise has been generated but any impact on the broader market will be short lived,” he said.