This trader is betting against companies. Now he’s targeting one of the biggest.
Hindenburg published a report accusing the Adani Group of, among other things, artificially inflating the stock prices of its companies over decades by using a network of foreign shell companies associated with Adani’s relatives. Hindenburg argued that Adani’s companies were collectively overvalued by more than 80 percent in the Indian stock market.
Hindenburg’s allegations hit shares of the Adani Group hard. By the end of the week, some stocks had lost 20 percent and the companies’ collective market value had lost $51 billion, as the Adani Group denied the allegations and threatened legal action against Hindenburg.
Hindenburg said it stuck to its report and would “welcome” lawsuits.
It may seem difficult for a relatively small five-year-old research and trading firm, but Hindenburg’s rise was lightning fast under the leadership of Anderson, a Connecticut native who experts and colleagues say has a knack for a type of stock trading known as short selling. .
“This is a cutting-edge business,” said Carson Block, a prominent short seller. “And Nate has been really good at it so far.”
Short sellers bet against stocks or other assets using various financial maneuvers. While some short sellers simply gamble on a company’s stock falling, others – “activist short sellers” – release research on a company’s weaknesses, such as alleged misconduct, in hopes of convincing the market to sell stock.
Some business leaders see activist short sellers as distasteful actors trying to profit by destroying companies. But others say they can play an important role as actors driven by high financial rewards to uncover corporate fraud.
“I think brief activism is a tool. And it can be used in a good way, or it can be used in a bad way,” said Gabriel Grego, the founder of Quintessential Capital Management and a short seller who has worked with Anderson in the past. “Just as a knife can be used to stab someone or perform life-saving operations, it depends on how you use it.”
Anderson grew up in Connecticut, reports Bloomberg, and has had a penchant for asking big questions from an early age. In an episode for the Wall Street Journal podcast “Bad Bets,” he said that as a child he tried to convince a rabbi at his Orthodox Jewish school that the biblical book of Genesis was incompatible with the theory of evolution.
He earned a business degree from the University of Connecticut and worked at an investment company before going short selling for himself full-time, Bloomberg News reported. He told the Wall Street Journal in 2020 that he remained “broke” not long after starting Hindenburg in 2017.
But he stuck to short selling and published a number of reports about the company’s alleged misconduct.
Grego told The Washington Post that he worked with Anderson in 2018 to investigate a cannabis company and prepare a report on the company’s acquisitions. Grego called Anderson “an extremely intelligent person” with a “great sense of humour”.
They became friends after meeting at a conference and worked together twice, combining Anderson’s public document skills with Grego’s preference for fieldwork.
“I think he has a nose for this kind of fraud,” said Grego. “He’s incredibly productive; he works very, very, very, very fast.
Anderson and Hindenburg struck big in 2020 with a report on electric vehicle maker Nikola, which claimed the company was misrepresenting its technology. The report sent the company’s stock price plummeting, prompting investigations from the Justice Department and securities regulators. Nikola’s founder was later convicted of fraud.
The Nikola trade launched Anderson from obscurity to a serious player. “It’s like a rocket that he suddenly stepped on,” Block said.
But taking on the Adani Group is a much more ambitious task. Critics say the success is largely due to the founder’s ties to Indian Prime Minister Narendra Modi, and that the company’s business interests are closely aligned with the government’s policy objectives. The Post reported this week that Modi’s government has taken steps to help the company, which receives most of its revenue from coal-related power generation, shipping, mining and electricity transmission activities.
In addition to the threat of potential lawsuits, short sellers generally need to exercise caution when dealing with powerful entities, Block said.
“I guess India isn’t on his list of places he’d like to go,” Block said.