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French hedge fund Carmignac takes short position on Alphawave after poor IPO


Hedge fund Carmignac has taken a big short position on Alphawave (LSE:AWE) shares after the company struggled to keep its value after its IPO. Carmignac said it had a short position of 0.52% of Alphawave shares on 19 May, then increased that again on 21 May and 24 May.

The overall value of the short position is estimated at in excess of £12m and now accounts for 1.03% of stock.  Alphawave listed on the London Stock Exchange at 410p but it took a hit straight out of the gates as the share price slumped. Some £500m was shaved off its value. Stock was bouncing close to the 300 at the time of writing (306 on 26 May) which is a long way south of its debut price.

There may be other smaller short positions against Alphawave in the market, but currently UK regulations only require hedge funds to report short positions that exceed 0.5% of the stock.

Alphawave was listing in a tough to value market

It remains hard to evaluate whether big IPOs are going to do well in London. Deliveroo (LSE:ROO) had a poor opening and Alphwave also failed to do well. Fund management industry insiders have privately told us that this has a lot to do with the initial asking price and the banks are trying to bring some companies onto the market at simply too high a price.

Another factor is that tech stocks are still trading at extremely high valuations. Short specialists are looking at those tech stocks that have been boosted well above realistic valuations by the 2020 tech buying frenzy. That is bound to shake out over the next few months.

Alphawave sits in the centre of the important chip manufacturing market, so enthusiasm for its product – so-called ‘chiplets’ used in other products – is understandable. Supply lines have been disrupted by the pandemic just as demand for chips is picking up. There are a number of things it has going for it, as we revealed in our own analysis immediately post the IPO. This includes a growing order backlog, fast-growing revenues and huge profits. All this looks great on paper, but as we wrote last week, valuations are nuts on the stock.

Alphawave shares are within quite the nexus of competing market forces – on the one hand you have the traditional long only funds sitting this one out for the time being, which is opening up downside prospects on the share price, but on the other Alphawave look poised to make some big profits in 2021 in a highly squeezed global chip market. That is simply not going to go away and at some point the big long only managers are going to start buying this one – the question is where there entry target price sits.

Who is Carmignac Gestion?

Carmignac has history in the UK market, having successfully shorted Aston Martin (LSE:AML) shares when that company was struggling back in 2018. We can only speculate on Carmignac’s rationale for the short position, but it is likely that the hedge fund sees Alphawave as simply too expensive to to remain at the high asking price.

Carmignac is a primarily France-based hedge fund which was founded in 1989. It grew up in the 1990s relying on French investment but has since gone international through its Luxembourg base. It now manages over €39bn in assets making it one of the heavy weight hedge funds in the European space. It now employs nearly 300 staff and manages 24 distinct investment strategies.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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