New York (HedgeCo.Net) – Billionaire and hedge fund manager extraordinaire John Paulson has reportedly pocketed $139 million by betting against the Royal Bank of Scotland, further fueling cynicism that shorting aids in driving down share prices.  

Paulson is no stranger at predicting trends and shorting companies that he feels fit.  Late last year, his New York-based Paulson & Co. disclosed short positions in the British mortgage lender HBOS, Barclays and Lloyds TSB.

Investors turn to Paulson because he seems to have a knack for placing bets that he feels will turn out in his favor.  Paulson infamously bet against the U.S. housing market in 2007, which garnered himself a $3 billion paycheck while returns on his hedge funds continued to rise.  In 2008, when most hedge funds lost an average of 15 percent on the year, Paulson’s funds kept steady, with his Advantage Plus fund up 20 percent.

While some argue that the practice of shorting is responsible for driving down share prices, many feel that is an unfair assumption.  The ban on short selling that was enacted last September in the UK was finally lifted earlier this month, although short positions are still required to be disclosed.  The Financial Services authority has said they would reinstate the ban if it proved to be needed.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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The Wall Street Journal – The U.K.’s markets regulator plans to end its ban on short selling of financial stocks.

The Financial Services Authority said Monday that it would continue to ask hedge funds, which said the ban had hurt markets and failed in its objectives, to disclose short positions in banks and other financial stocks, and it would reinstate the ban if necessary. The ban is set to expire Jan. 16.

The FSA introduced the ban Sept. 18, after a tumultuous week that saw share prices of some U.K. banks plummet, partly on what was believed to have been short-selling activity. In short selling, investors borrow shares and sell them, hoping they can buy the shares later at a lower price and replace them, turning a profit.

The FSA wanted to stymie the potential for market abuse in which funds may spread rumors in companies in which they had short positions. The decision to remove the ban is an acknowledgment that market conditions have changed since that time, the FSA said.

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