Glencore: Hedge funds poised for £200 million windfall after shares tumble

Two top hedge funds stand to make nearly £200 million from Glencore’s tailspin after placing bets on a plunge in the group’s share price last month.

US based hedge fund Passport Capital and Mayfair-based Lansdowne Partners both declared short positions on the stock before yesterday’s dramatic price plunge, giving both firms a hefty paper profit on the positions.

Hedge funds borrow shares in the market from other investors and then sell them - before buying them back at a lower price when they fall.

San Francisco Passport, led by hotdog salesmen turned hedgie John Burbank, has a paper profit of around £80 million after borrowing about 106 million Glencore shares – equivalent to 0.81% of the company’s share capital - at the start of September. Shares were trading at 144p when it declared the position.

Glencore shares closed at 68.62p last night but recovered 10% today.

Passport, which manages about $4.1 billion, started shorting Glencore at the start of August before gradually increasing its holdings over the month.

The company was founded in 2000 by Mr Burbank but shot to prominence after making money betting against US subprime mortgages during the financial crisis.

London based hedge fund Lansdowne Partners, founded by Sir Paul Ruddock and currently led by ex-Rugby Union international Alex Snow, also declared a 0.9% short on the stock on 27 August – when shares were at 143p.

The plunge to last night’s closing price stands to give Lansdowne a £87.76 million paper profit on the short, based on the 118m shares it said it had borrowed.

Hedge funds have to declare any short positions above 0.2% of a company’s share capital to the City regulator the Financial Conduct Authority, and keep them informed for every 0.1 percentage point increase.

The FCA makes public any short positions over 0.5%.