Hedge funds in the sights of investors: "It hits exactly the right people"

In the trial of strength on the stock exchange between hedge funds and small investors, hobby traders can prevail for the time being. In an interview with ntv.de, asset manager Schön sympathizes with the attacks on the Gamestop share and criticizes the "corpse-flung hedge funds".

ntv.de: The attacks by small investors are currently getting into trouble. Do you think it hits the right people?

Markus Schön: Of course it hits the right people. From my point of view, hedge funds have become very terrible institutions that speculate with the money of strangers and thus further create uncertainty in the capital market, which already allows for too much debt.

Are short sales really of no use?

I don't see any concrete effect at all. A company that is through no fault of its own or is in difficulties due to certain framework conditions, of course, has no use for a short seller. In the phase in which a company can still be saved, it makes more sense to support it operationally. Hitting a corpse bat on a company that is on the brink anyway does not correspond to my moral ideas.

Hasn't Wirecard just shown how useful short selling can be?

Wirecard has shown how important independent research is, which is becoming increasingly rare. If a hedge fund really does this, it's good. Here, however, their own interests were also pursued – only different from those of the banks, who watched the goings-on at Wirecard for far too long because they could make money with it. If hedge funds were not operating according to the motto “what is not forbidden is allowed”, the attacks by retail investors would not have been necessary at all.

How much sympathy do you have for investors?

I think the small investors are great because they are turning the balance of power. Until now, hedge funds had the option of speculating against certain companies. A small group of people determines the well-being and woe of really big companies. Now a few thousand small investors come along and say: not like that. Nobody expected that.

How political do you consider hobby traders to be who meet and not only drive up the prices of Gamestop, but now also Dogecoin and silver?

I doubt that retail investors are politically motivated. What I really like about them is the fact that they are against a system. Certainly not everything is going in the right direction with small investors either. But of course the price of silver, for example, is clearly undervalued. It's really funny that he's being driven a little now.

If retail investors don't have a political agenda, what drives them?

There are repeated claims that more people are striving to go public in the corona pandemic. This has been proven in the USA, but less so in Europe. There is a group of retail investors who are fed up with the fact that a handful of top-paid hedge fund managers can make decisions about companies like in a dictatorship.

Isn't this "good versus evil" scheme too simple? The hedge fund Citadel of Ken Griffin, against which the Gamestop attack was primarily directed, is benefiting from the rise in the price of silver. Citadel is heavily invested in Blackrock's largest silver fund in the world.

The real question is who is less angry? The small investors democratize the capital market to a certain extent. They are not doing everything right. Conversely, not all hedge funds do everything wrong. But whoever subordinates all moral rules to profit must be shown limits. This is exactly what is happening and shows that the stock market must not be left to greedy speculators.

The action of small investors is considered a campaign of revenge. Isn't it just going to cost some hobby traders a lot of money in the end?

Gamestop is a company that is actually not operationally viable. Accordingly, the price of 18 US dollars was already ambitious before retail investors got on board. $ 360 is a bad joke, of course, and shows that stocks aren't necessarily a real asset. Many amateur traders will lose a lot of money. Whoever does not jump up until the end has the greatest risk. Ultimately, one has to hope that small investors only invest money that they can actually do without.

If small investors meet on the Internet and purposefully drive up the price of a share, do you think this is market manipulation?

I would not go so far. Because then what hedge funds did before would also be market manipulation. Just because I am pooling money does not automatically lead to market manipulation. In the case of the Gamestop, retail investors have rather held up a stop sign in order to slow down the excesses of large hedge funds in the market.

Why are there no complaints about market manipulation when hedge funds collude?

The question is always: where is the real big money? And that's in the financial industry, which does a lot of lobbying. So far, the fund industry in Germany is not subject to the Banking Act and is not regulated by the Federal Financial Supervisory Authority (BaFin) and the Bundesbank. In the US, where most of the hedge funds are based, the positive image of extremely pronounced financial capitalism is much greater than in other regions.

So-called neo brokers made the action possible in the first place. At the same time, Robinhood and Trade Republic have temporarily suspended buying shares. Why did you do it?

An answer can only be speculative. I believe the neo brokers have been surprised by the attention they have suddenly received. At Robinhood in particular, who are committed to simplifying the investment process and promising their investors big bucks, they probably preferred to step on the brakes before breaking a wave whose end is not in sight.

Do you think it is possible that the trading platforms wanted to keep their backs free for the hedge funds?

That cannot be ruled out. However, I don't think that the neo-brokers see large hedge funds as particularly worthy of protection. Of course, the neo brokers are also worried about the financial system. If one hedge fund after the other were now to be pushed against the wall by small investors, the financial system would eventually falter very quickly. That could also be the beginning of a new financial crisis, which is why you ultimately have to deal with it responsibly.

If a hedge fund speculates and goes bankrupt, the entire capital market can shake. How dangerous is that for the financial system?

This was seen at the end of the 1990s as the forerunner of the 2008 financial crisis using the example of Longterm Capital, which could only be saved through the merger of the investment banks. If the market participant is big enough, "Too big to fail" applies again. If there is no bailout, there will also be crashes because the hedge funds are invested in such a way that they are so intransparent that no one knows where a bankruptcy would result.

In the USA in particular, many people are now calling for the consequences, but they do not say what they might look like. Do you think it's just a roar?

No roar, rather blind activism. This is only intended to suggest: We are doing something, we are ensuring security and transparency on the capital markets. There will be relatively little, especially in a time after Donald Trump, who wanted to massively deregulate the markets and in some cases did so.

What would be possible?

It's actually very simple. Shadow banks, which include investment and hedge funds, must also be placed under state supervision and regulated. They have to meet the same requirements as credit institutions. The more international this is regulated, the better it would be.

Juliane Kipper spoke to Markus Schön