Hedge fund Coltrane Asset Management unveiled a short position in UK investment trust Chrysalis Investments — a bet that is the latest sign short-sellers are targeting companies that invest in startups.
Coltrane is a New York activist fund run by Mandeep Manku, a Deutsche Bank alum and former trader at Dan Loeb’s hedge fund Third Point. Jupiter Asset Management’s publicly listed Chrysalis Investments invests in early stage, mostly unquoted, startups.
Coltrane’s short position makes up about 0.59% of Chrysalis shares, according to 7 June regulatory filings analysed by research firm Breakout Point. A rough calculation based on the stock’s market capitalisation makes the bet worth about £4m. Chrysalis shares have plummeted about 54% this year.
“Short-sellers seem to be shifting attention to an earlier part of the cycle. Now they’re focusing on the public part of the VC market,” said Ivan Ćosović, founder of Breakout Point. “This is a first-ever short disclosure by any money manager in Chrysalis.”
Ćosović pointed to another example of this trend — short-selling research firm Viceroy made waves earlier this year by publicly targeting Belgium-based investment firm Sofina. That stock is also down about 54% this year.
Swedish fintech Klarna makes up almost 20% of Chrysalis’ portfolio — by far the investment trust’s biggest holding. Privately-held Klarna last month said it planned to axe more than 600 jobs, and is facing headwinds such as Apple’s plan to introduce buy-now-pay-later options for consumers as the US tech giant budges in on the consumer payments space.
Chrysalis, which also holds UK challenger bank Starling, was set up in 2018 and overseen by Jupiter fund managers Richard Watts and Nick Williamson. The co-portfolio managers were paid more than £60m between them last year.
Hedge funds are reaping big returns on their short bets as market tumble. As recession fears and interest rate hikes spook investors, the highest-risk assets, like tech companies and cryptocurrencies, are getting hit the hardest. The S&P 500 is now firmly in bear-market territory while cryptos including bitcoin plunged to multi-year lows.
The private equity and venture capital industries may face a reckoning, as investors scramble to figure out how exposed they are to plunging unicorns and other non-listed startups.
Coltrane also shorted Wirecard in the first quarter of 2020. The German payments company collapsed a few months later.
A Chrysalis spokesperson referred Financial News to a 23 May trading update, which said that Klarna “has been written down materially” and that its March net asset value — or total assets minus liabilities — is based on a $30bn valuation.
The statement also included a statement from Watts and Williamson, who said they are pleased with “the robust rates of revenue growth — approximately 80% per annum on a blended basis” for the overall portfolio, which will be the “key determinant of future NAV performance.”
They added: “Many of our companies are only in the early stages of making an impact on their sizable addressable markets, which we expect to support their growth aspirations into the medium term.”
Coltrane was contacted for comment.
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