SANTA MONICA, Calif. -- Mad as hell about corporate policy? A new hedge fund is, and it's putting its money where its mouth is with an investment strategy of shorting shares of companies with which it takes issue.
By buying put options, or shorting a stock, the hedge fund hopes shares will fall, in effect punishing a company for what it calls "misdeeds" and profiting all the while. A portion of profits will go toward mending the social wounds inflicted by target companies.
The fund is the brainchild of Max Keiser, the investment activist, for lack of a better definition, who launched Karmabanque.com several years ago on a similar philosophy. Zac Goldsmith, son of famed corporate raider Sir James Goldsmith, is also a partner in the venture. Goldsmith's The Ecologist magazine will audit, track and publish results.
"For every 1,000 new boycotters, I and my group of investors/activists, including Zac, will increase the size of the fund by 5,000 pounds," says Keiser. "All profits (minus a two percent processing fee) will go the groups/people who are the victims of bad companies."
The London-based fund's first target is Coca Cola.
"As Coke's stock goes down, and as we collect more boycotters, the victims of Coke's business model in places like India and Colombia will get all the dividends from the fund," says Keiser.
Keiser et al are waging their "boycott" at Coke because of claims and actions against the multinational conglomerate that allege human rights violations, racism, and health concerns, among other disperse findings which have plagued the company.
Coke has issued numerous public statements with regard to the allegations Keiser and his investors/activists address. The company has defended and/or clarified its position on many of its supposed violations, and flatly denied some of the more outrageous claims (such as the use of "illegal armed groups" in Colombia).
To be sure, there's quite of bit of hyperbole in Keiser's subjective recitation of Coke's abuses. Indeed, in eyeing other companies for what he calls a "smart boycott," or short-selling, Keiser is downright virulent (His description of Microsoft ills is particularly demonstrative.)
While Keiser's rhetoric may be better blotted out, his financial metric is worth a look. He calls this metric the Boycott Vulnerability Ratio. This ratio is the company's market capitalization divided by trailing annual sales. That number, he says, can then determine exactly how much damage each dollar of sales lost to a boycott would affect share price. Coke, for example, with a BVR of five would be more vulnerable than Exxon, with a BVR of one.
Coke is trading at about $40 per share, with sales of $20 billion and a market capitalization of $100 billion. That means, using Keiser's BVR, for every person who stops drinking a can of Coke, shareholders will see $5 in market capitalization.
This would all seem profoundly cuckoo if Goldsmith wasn't involved. The heir has a fortune of some $700 million with which to make a stand. He's vocal about his desire to smash global capitalism and promote environmentalism worldwide. With investing power like that, a short-sale boycott strategy might just raise corporate eyebrows.
Already, short-sales put pressure on a stock to fall. Sophisticated investors regularly check with Nasdaq to gauge short-interest data. Companies such as Netflix may have even seen its stock price fall more sharply recently because of so many people taking short positions. (Barchart.com shows resistance levels to stock prices, taking into account short-sales data.)
In any event, there are loads of hedge funds and other investment vehicles that specialize in short-sales. (The flamboyant Feshbach Brothers made short-selling fashionable in the 1980s before flaming out in the early 1990s.) Some have even tried socially conscious investing to try and sidestep corporate malfeasance.
But Keiser and his group of investors are looking to combine socially conscious investing with short-selling strategies to jujitsu corporations with their own capital market power; Some may fall.
For more information on Smart Boycotts, see www.karmabanque.com or www.theecologist.org.
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