published Jun 28, 2018 6:01:06 PM, by Tom Redmond
(Bloomberg) —

Earlier this month, Soren Aandahl scored one of his biggest victories as a short seller when he dramatically took down the leader of a world-famous brand.

In some ways, the resignation of Samsonite International SA’s chief executive officer after Aandahl’s report was business as usual for the Austin, Texas-based investor, who’s trouncing his peers over the past 18 months with a run of successful investments.

But there was one important difference. The short seller who made his name sniffing out what he calls “zeroes,” fraudulent companies with no value, was branching out into a separate category of investments: larger firms as the universe of outright frauds that he can target shrinks. For example, nobody would describe Samsonite, the world’s largest luggage maker, as worthless.
For the 37-year-old Aandahl, who parted ways with Glaucus Research Group this year and set up his own investment firm, Blue Orca Capital, this was a deliberate evolution that reflects, in part, Aandahl’s desire to broaden the focus of his investments. There are difficulties taking bearish positions in smaller, lesser-known firms as there’s often a limited supply of shares to borrow — a precondition in a short sale.

Different Approach

“If you guys looked at some of our historical things we did, it’s like, ‘Look, we went to a factory, the factory didn’t exist, this means it’s a fraud, it’s a freakin’ zero’,” Aandahl said in an interview. “This report’s not like that.”

When done well, shorting smaller companies does present opportunities for top returns. Glaucus’s campaigns returned an average of 51 percent from Jan. 1, 2017 through June 19, according to research firm Activist Insight, as the average short campaign lost 4 percent in the period. Blue Sky Alternative Investments Ltd. is down 85 percent since Glaucus published a short report on the Australian alternative asset manager in March. Quintis Ltd., another Australian firm, lost all its value when the company went into administration in January after Glaucus issued a report on it in March 2017.
“Those are still the best investments,” Aandahl says. “If you find a zero, and you can short a zero, that’s the best short.”

Branching Out

Aandahl, who used to spend 70 percent of his time researching companies in Hong Kong — notorious as a breeding ground for dubious companies — has cut that down to about 30 percent at his new firm. He’s turning instead to regions such as Australia, Canada and the U.S., and is considering investments in the U.K. for the first time.

At Samsonite, whose shares have fallen more than 7 percent since Blue Orca published its report in May, Aandahl isn’t just saying that the shares are overvalued. Aandahl has also cited accounting lapses and poor corporate governance, which Samsonite has denied. Yet, it’s those very complexities that make the company an interesting target for the short-seller, he says.
“Samsonite opens a new universe of investment ideas,” Aandahl says. “Names that are large, with liquidity, that are known” and where “you can have a discussion about valuation, accounting issues and stuff like that.”

To contact the reporter on this story: Tom Redmond in Tokyo at tredmond3@bloomberg.net To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net Sree Vidya Bhaktavatsalam

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