One of the important things that distinguishes hedge funds from regular mutual funds is their ability to short stocks they believe are going to go down in price. However, this practice, although common, is never popular with the executives of the company that is being shorted. That’s because it is an implicit criticism of how badly they are running the company. Short sellers make money only if the stock price goes down. They can lose a lot of money when the shorted stock goes up.
Sahm Adrangi founded the hedge fund Kerrisdale Capital Management, and now serves as its Chief Investment Officer. He put $1 million into it when he launched it in 2009. It has $150 million in assets under management, as of July 2017. Sahm Adrangi looks for undervalued stocks to buy and hold until their prices go up (going “long”) and for overvalued stocks to short and profit from when their prices go down. Kerrisdale Capital is also known for publishing its research.
Adrangi began his career at Deutsche Bank. He financed high-yield and leveraged loans. He also advised creditor committees on bankruptcy and restructuring situations at Chanin Capital Partners. He also spent several years at Longacre, a multibillion dollar hedge fund that specialized distressed debt.
After founding his hedge fund, Sahm Adrangi attracted notice for shorting fraudulent Chinese companies, including China-Biotics, China Marine Food Group, Lihua International and others. Two of his targets, ChinaCast Education Corporation and China Education Alliance became the subject of enforcement actions by the Securities and Exchange Commission. When he shorted those companies, Adrangi made his research public information. Of course, this also helped to drive the share prices of these companies down, which profited him.
Now Sahm Adrangi and Kerrisdale Capital are considered leaders in the field of short activism. He does want to profit by shorting the stocks of overvalued companies, but at the same time, by exposing the company’s faults, he is saving the money of investors who would have paid too much for it when buying. He is also known for using social media to disseminate his findings, while most hedge fund managers prefer to keep their research to themselves, believing that gives them an advantage over other investors.