The reappearance on the CNMV’s radar of two large hedge funds such as Worldquant and Qube operating short on Grifols put some investors on alert about a new movement in the pharmaceutical company’s stock market. Who was the necessary companion for those bearish positions? Who could have lent millions of shares of the pharmaceutical company? Leaving aside the Grifols family, all eyes pointed to Capital Group as its most likely origin, after the movements they made after the outbreak of the Gotham crisis. However, this time it was BlackRock that has temporarily given up the use of its shares.
According to CNMV records, dated February 2, the largest investment firm in the world notified that it had increased its participation in a kind of gesture of investor support for the company. However, it was quite the opposite. BlackRock raised the total percentage from 3.9% to 4.2% but the movement hid a defensive and potentially very negative bet for the stock. It must be remembered that the firm declares the aggregate participation of dozens of funds at the same time, from multiple jurisdictions, with money from thousands of different participants, as well as with investment strategies and managers that may be different.
However, there is always a pantry of stocks available to short investors. Specifically, BlackRock doubled the volume of loans from other investors from 0.69% to 1.46% of the capital, equivalent to about 6 million Grifols securities. This package is valued at around 60 million euros and is enough to supply two or three large hedge funds that exceed 0.5% of the pharmaceutical company’s capital, the level that requires it to reveal its position to the CNMV. according to current regulations. During the first days after the publication of the Gotham report, Capital Group, manager of the American Funds and Europacific fund ranges, recorded a sale of shares and at the same time a loan.
How does securities lending and short positions work?
What does an investor like BlackRock gain by lending his shares to shorts? On paper, opening a short involves selling shares with the intention of dropping the price, for later repurchase on the stock market at a lower price and returning it to its original owner. The bearer pockets the price difference. Along the way, the lender obtains money in the form of rental of the position or interest related to the securities loan. In turn, the short trader will make a profit if his trade is successful. Then there are the variants of this operation with the use of financial derivatives such as options, swaps or CFDs that leverage the investment, multiplying the profit… or the loss.
In this entire process, there is a party that always wins no matter what happens. It is the broker or intermediary of the operation. He is the one who looks for the shares available to carry it out, offers them to the ‘hedge fund’ in question and even finances the operation. It is the large business banking houses such as Goldman Sachs, Morgan Stanley, BNP, JP Morgan, UBS and company that orchestrate these types of structures that then give rise to the presence of hedge funds in companies. Its presence does not have to be entirely evil. There are times that they are a fundamental part so that a company can finance itself by issuing bonds, as is the case of Audax Renovables, as published by ‘La Información’.
In the case of Grifols, Qube controls 0.61% of the short capital, while Worldquant has 0.5%. The latter is a subsidiary fund of Millennium Management, which has also been shorting the pharmaceutical company for some time. Gotham City Research, Daniel Yu’s analysis firm, set up its own hedge fund together with the manager Portsea to invest in the companies under its analysis. The alliance gave rise to General Investments Partners, the fund that has made the most money and in less time with Grifols with a hit of tens of millions of euros by betting just before the stock market crash on January 9.
Prior to the CEO’s replacement
BlackRock’s notification came last week after Grifols announced the appointment of a new high-profile human resources chief. Camille Alpi, from the multinational Danone, has taken only a few days to reorganize the pharmaceutical company’s leadership in the face of the biggest corporate crisis in its history. Nacho Abia, an executive from a Japanese pharmaceutical company, will become the new CEO although he will share executive functions with Thomas Glanzmann, who will continue as president in the new stage.
The Grifols family, which controls just over a third of the shares, will no longer be part of the management committee with the departure of Raimon Grifols Roura and Víctor Grifols Deu, previous co-CEOs under the presidency of Víctor Grifols Roura, brother and father. . , respectively, of the two executives. Both were at this time the company’s chief operating officers and, in addition to partners through Deria, were also the main shareholders of Scranton Enterprises BV, a Dutch holding company with business and cross-financing with Grifols that remains under investor scrutiny. . and the action being carried out by the CNMV. Grifols shares reacted with increases of 4% on Wall Street, where the ADR or the version of its shares in dollars for the American market is listed.
