Lending stock to yourself: nifty idea, but effectively just active long-only management?
Jun 17th, 2008 | Filed under: Institutional Investing
Since May 2002, a Hong Kong based enhanced index fund manager has been essentially lending stock to itself to create short positions in its long/short equity fund. The result has been a portfolio architecture that one usually finds only at the largest, most sophisticated institutions.
The firm (”Enhanced Index Products Company” or “EIP”) was the subject earlier this week of a Reuters article that said the firm “is looking to triple its assets through a rare marriage of passive and alternative investing, creating market tracking index funds it can use to source stock for complex trades.”
Essentially, EIP uses its much larger index funds as a source for the stock borrow required by the relatively puny long/short fund - a strategy to short-selling that the firm says is “ideal solution for markets where hedge funds can’t easily or cheaply borrow stock they need for their often sophisticated trading strategies”.
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