The long and short of shortselling with Jean Pierre Verster
Jean Pierre Verster, a well-known short seller and portfolio manager at Fairtree Capital, famously shorted African Bank and Steinhoff. The Financial Mail asks him about his best shorts, his decision to join Capitec’s board as a nonexecutive director, and Viceroy.
Why is short selling important?
Any market is a place where buyers and sellers meet. Just as buyers are allowed to borrow money to buy shares, sellers should be allowed to sell shares they don’t have to ensure equilibrium in the price discovery process. If this were not the case, buyers would overpower sellers and distort price discovery.
What was your first short?
I can’t remember the exact share, but at university I opened a CFD [contract for difference] account and started trading financial instruments on the long and short side. I doubled my money very quickly and became overconfident — and then lost it all.
When I moved into equities, I understood that one should never bet too much from a position of overconfidence. Be aware of what you don’t know and what the blind spots are in your own thinking.
What was your most profitable short?
The profits earned on shorting African Bank, while I was an analyst at 36ONE Asset Management, were the highest in absolute terms. But as a percentage of the difference between when I shorted and when I covered [my short], it would be Steinhoff, specifically the shares I shorted on the Frankfurt Stock Exchange in the global funds I manage for Fairtree.
Have you ever been ‘caught short’?
Yes. I was short a lot of commodity companies, specifically gold mining companies, at the end of 2015. Their share prices rose extremely quickly coming into 2016. I wasn’t able to cover the short quickly enough and experienced a short squeeze, which was very painful.
Why did you accept the invitation to join Capitec’s board?
I was still at 36ONE at the time and we had extensive discussions about it internally. I was allowed to accept only once we were satisfied that we could manage any conflicts of interest. 36ONE was kind enough to understand that this would have a tremendously positive effect on my personal and professional growth.
It is an honour, in my opinion, to be invited to serve on the board of a publicly listed bank — even more so as chairman of the audit committee — and I felt I could make a positive contribution.
What do you make of Viceroy’s report on Capitec?
I don’t doubt that Viceroy thinks it is correct, but on a proper analysis of the report, it did some shoddy work and did not understand [how Capitec applies] all the concepts used in the report.
I think [Viceroy is] doing short sellers in general a disservice by publicly disseminating information that is patently inaccurate.
Viceroy’s claim that I was indirectly short Capitec through my short on Steinhoff is mischievous, as shorting shares in Steinhoff did not lead to the shorting of shares in Capitec.