Short-selling hedge funds including Melvin Capital became punchlines last week as Reddit users and other retail investors piled into shorted stocks like GameStop. One person who was not amused by the trading frenzy: the leader of the Alternative Investment Management Association.
In a letter Monday to members of AIMA — an industry group that represents more than $2 trillion in hedge fund and private credit assets — chief executive officer Jack Inglis took aim at “commentators who have been clapping with glee at the misfortune of those hedge funds exposed to these sharp stock price movements.”
Writing that much of the media commentary he has read “seems to be bent on celebrating Main Street getting one up on Wall Street,” Inglis warned that the situation could have consequences for all market participants if not checked by the Securities and Exchange Commission or other rule makers.
“Regardless of one’s views on hedge funds, what everybody should be focusing on is the fair, orderly, and efficient functioning of markets,” he wrote. “That is vital for all investors, big and small.”
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In the letter, the AIMA chief executive said he would “welcome a full investigation by the SEC, Congressional committees, and any other bodies into the events in markets this past week.” However, Inglis argued that hedge fund managers “should not be the target” of any regulatory inquiries, defending short selling as an already “tightly regulated” practice.
“Hedge fund managers are finely attuned to their compliance obligations and from where I sit, I can only see an attitude of strict adherence to these amongst our members,” he wrote. “The role of some supposedly responsible lawmakers, who have been cheering these events from the side-lines, with a knee-jerk reaction against short selling, is concerning to say the least.”
Inglis went on to suggest that existing rules requiring hedge fund managers to disclose meaningful short positions may have been “abused by others to create the huge value distortions that we have just seen in such stock prices.”
“What we have witnessed in the past week is a game that has led to a gross distortion in both efficient market functioning and true price determination,” he wrote. “If that is to continue, we will all be the poorer for it, including those who are clapping the loudest.”