Smokescreen or fire sale at Aberdeen Asset Management?

Outlook: A rise in interest rates by the Federal Reserve will trigger further problems in emergent markets for years

Martin Gilbert, Chief Executive of Aberdeen Asset Management (Andrew Redington/Getty Images)

“No smoke without fire” is hardly the most compelling reason for making a strategic investment. But more carefully reasoned decisions often have just as much chance of success or failure.

Take Aberdeen Asset Management’s move to become one of the biggest global funds in emerging markets. It seemed wise at the time, but turmoil in those regions has wiped a quarter off its share price this year.

The “no smoke” theory triggered a 7 per cent jump in Aberdeen’s share price at one stage yesterday, with the kindling being reports in the Financial Times that Aberdeen chief Martin Gilbert has been sounding out potential buyers for the company.

Aberdeen denied it, asking why it would flog a well-capitalised business at this low point in the emerging markets cycle. But that argument only works if you think the developing world actually is about to turn. A counterview is that a rise in interest rates by the Federal Reserve will trigger further problems in those countries for years to come as investors return to the US and local dollar-denominated debts became more expensive to service.

I doubt Mr Gilbert does want to sell right now. If he did, he’d have to give first refusal to his biggest shareholder, Mitsubishi UFJ, which holds a 17 per cent stake. And there’s no gossip about that having happened. But takeover rumours can take on a momentum of their own, attracting bidders to turn shareholders’ heads. This one could be smoking for a long time yet.

The short-seller’s dream: healthily unhealthy

So, who was gossiping to the FT about the potential sale of Aberdeen? No doubt Martin Gilbert would like to know as he edits down his Christmas-card list.

A few names can be eliminated from his enquiries: those of the many “short-sellers” who have borrowed Aberdeen’s shares to bet that they’re going to fall. Aberdeen’s dismal share price performance has paid off handsomely for the shorts, who pray nightly that the gloomy times continue both for Aberdeen and the emerging markets for which his firm is a proxy.

So, Discovery Asset Management, Odey Asset Management, AQR Capital Management and Samlyn Capital, all of whom got scorched fingers from yesterday’s share price jump, can be ruled out of the whodunnit list.

Crispin Odey – who got front-page billing in this paper yesterday over his anti-EU stance – and Discovery’s “Billionaire Bob” Citrone have also got a big downer on another UK asset manager, Ashmore. Between them, they’re shorting a whopping 9 per cent of that company’s shares.

These positions are nothing personal, merely bets against emerging markets, and the Western public’s appetite to put their money there. Elsewhere in their portfolios, both Mr Odey and Mr Citrone have had some mixed performances lately.

But Aberdeen and Ashmore have been a short-seller’s dream: healthily unhealthy for the long term.

Red flags that point to ticking timebombs

Everyone of a certain age has a story about the place they should have bought. You know, the mouldy flat on the street where the druggies used to hang out that’s now a gentrified yuppie pad going for a million.

Journalists are the same about stories they never wrote. The one eating me right now was a tip-off in August about “red flags” suggesting danger ahead at a mobile tech company called Globo.

A short-selling hedge fund friend, whose hit rate is quite astonishing on companies which go on to implode, told me of a number of peculiarities at Globo, all of which were in the small print of the company’s most recent annual accounts.

In these financial statements, Globo referred to its revenues including €3.8m (£2.7m) in “post-dated cheques” – up from €1.2m a year earlier. Peculiar, my hedgie friend thought … Who writes post-dated cheques these days?

The company held €82.2m in the bank, but €72m of it was in banks with low credit ratings. Curiouser and curiouser.

Furthermore, Globo had €47.7m in net cash but was still looking to raise $180m (£117m) in a bond issue. Why so hungry for capital, my chum wondered. He didn’t know the answers, but invested in a nice fat short on the shares anyway.

I passed on his concerns to Globo, where a spokesman explained that it needed the extra bond money for future takeovers, and that it had in recent months moved its dosh into more conventional banks with normal credit ratings such as Barclays and UBS.

He added that post-dated cheques were perfectly standard in “several areas of the world”, making me feel parochial for even asking. In short, he warned, forget what the hedgies tell you. It’s all good at Globo.

Except it wasn’t. Despite the supposedly rosy prospect in August, as my colleague Jamie Nimmo describes, the chief executive sold more than 42 million shares in the company in the subsequent weeks. Now he’s gone and the company is on the rocks. As it happens, the allegations which are now emerging have not directly referred to my hedgie pal’s concerns. But, as I find time after time with his tips, the red flags he spots may not be the problem in themselves, but they can often indicate a company where a more serious timebomb lies in the accounts, ticking away.

Next time, I’ll do my job properly and just write the darn story.