Hedge funds are just a patsy. It is claimed the bigger the lie, the more people believe it. A nice example could be the notion that the reason for every share price fall has been due to a spate of hedge fund short-selling. During the ABC rout in February, CEO Eddy groves blamed short sellers. MFS executives blamed short sellers for its precipitous fall in January and last week, Babcock spinner, Erica Borgelt, was quick to point the finger at those evil short sellers. The business press lapped up the excuses, with the Weekend AFR leading its edition with “Hedge Attack!” while Chanticleer and leading AFR, Smage and News Limited business journalists noting hedge fund sales were behind the Babcock crash. — Adam Schwab

Hedge funds are a convenient target. They certainly won’t be speaking out to defend themselves and by fingering a wealthy, secretive foreign firm, executives can shift blame from their own sins altogether. The only problem is the recent Babcock share price rout was largely caused by Babcock investors fleeing, not hedge fund shorting. Crikey was told as far back as six weeks ago that it was near impossible for brokers to “borrow” Babcock stock – making covered shorts extremely difficult to execute. Further, the selling of Babcock last week was led by CommSec – hardly the broker of choice for hedge funds. — Adam Schwab

Things get even worse for Nosworthy. Not long ago, Crikey noted that Babcock director, Elizabeth Nosworthy was one of the unluckiest company directors in the country. Sadly, with the recent share price collapse of Babcock and Brown, things certainly haven’t improved. Perhaps Nosworthy should be dubbed the Black Widow for her effect on the share price of companies which she oversees. Australia’s most prominent female director is on the board of:

Company Role

Share price performance in the past 12 months

Commander Communications Chairperson Down 93%
Babcock & Brown Deputy Chairperson Down 84%
GPT Director Down 50%
Ventracor Director Down 63%

The average return for companies which Nosworthy’s is on the board is a staggering negative 72.5% in a year – a remarkable achievement for the former solicitor. — Adam Schwab

How is Babcock miraculously bucking the US housing downturn? One of the many unknowns surrounding the Babcock group is their 2007 purchase of BNP Residential Properties. Babcock paid $1.04 billion (which included $600 million debt) for BNP and in doing so acquired more than 28,000 apartments in the United States. In its 2007 Annual Report, BNB claimed that “the portfolio is performing well, benefiting from the current turmoil in the home mortgage market in North America”. This appears to be a somewhat bemusing comment, given that since Babcock spent around $1 billion to acquire US residential properties the US residential property market has dropped by around 14.4% according to the Case-Shiller index. (Babcock also claimed in its Annual Report that its properties are located in the South-East of the US. Miami, which is in the South-East, has dropped by 24.6% in twelve months). Unrecognized and increasing capital losses don’t seem to be bothering the rocket scientists at Babcock though. Real estate boss, Eric Lucas, told the AFR that “it’s not residential that is held for sale … it’s residential that is held for rent.” Given that rental yields tend to average around 5% over the long term, and Babcock would be paying interest rates of upwards of least 8% (and possibly up to 20%) on its debt, we wonder how smart those rocket scientists really are. — Adam Schwab

Get Crikey for $1 a week.

Lockdowns are over and BBQs are back! At last, we get to talk to people in real life. But conversation topics outside COVID are so thin on the ground.

Join Crikey and we’ll give you something to talk about. Get your first 12 weeks for $12 to get stories, analysis and BBQ stoppers you won’t see anywhere else.

Peter Fray
Peter Fray
Editor-in-chief of Crikey
12 weeks for just $12.