The exit of Hindenburg Research exposes a failure of the market
Subscribe to enjoy similar stories. A little more than a year after legendary Enron short-seller Jim Chanos threw in the towel on activist short selling, the equally famous Hindenburg Research is calling it a day. Short selling, short-trade research and public activism are all key to the functioning of the stock market.
And yet it’s fiendishly hard to combine the three strands into a business that endures. The starting point is that the market has a structural deficit of scepticism. Even after regulatory reform, investment-bank research suffers potential conflicts of interest—hence all those disclaimers.
True, investors still value their output. But that’s partly because they don’t really have to pay much for it. And big brokers aren’t in business to run dogged investigations into any red flags signalled by company accounts.
As for the independent research industry, it struggles to offer correctives. Its economics are challenging, even for firms trying to spot “buys" rather than “sells." Forensic deep dives into aggressive accounting require even more resources, including the reserves to fight likely legal battles. Investors value counter-consensus ideas; but too few are willing to pay what that really costs.
What about combining short research with trading for clients or on your own book? A successful short attack can generate huge profits superfast. But it’s not so simple. However you cut it, the business is risky and difficult, both personally and economically.
Founder Nate Anderson is winding up Hindenburg after a phenomenal run. Nowadays, he’s best known for his 2023 attack on India’s Adani Group. The societal legacy will be the short seller’s longer-term record.
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