'The Assassin' Fahmi Quadir on How to Survive as a Short-Seller

A short-seller is a gum shoe who roots out a particular story about a specific company and brings it to light. In this way, a short-seller is similar to an investigative journalist. Fahmi Quadir, the founder and CIO of Safkhet Capital, is known as the Assassin. Her notoriety proceeds her: Among her most well-known bets include short-selling Wirecard AG and Valeant. In today's conversation with Qaudir — recorded at our live show in London at Wilton's Music Hall — she dishes on what life is like for a short-seller, especially one as famous as her. In her mind, short-selling is only getting harder; it's a corner of finance that is facing an existential crisis, one whose value is questioned in what she calls a "golden age of fraud." She also tells us, that for the first time ever, she is going long with a focus on Korea that has nothing to do with the AI boom. Read more:Korea Exchange Is Said to Launch Weekly Options on Single StocksSwiss Pension Fund Eyes $1.1 Billion Private Credit Investment Only Bloomberg - Business News, Stock Markets, Finance, Breaking & World News subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 0:26Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:08Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:52Speaker 01

  Bloomberg Audio Studios. Podcasts, radio, news.

• 2:07Tracy Alloway?

  Hello and welcome to another episode of the All Thoughts Podcast. I'm Tracy Alloway.

• 2:11Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:13Tracy Alloway?

  Joe, I have a soft spot for short sellers. I think what they do is sort of sometimes similar to journalism, right? You're trying to root out a particular story about a specific company and bring it to light, I guess. And I always wanted to talk to this particular short seller. She's kind of famous in the space. I think she's one of the few short sellers, maybe, who's been in a Netflix documentary, more than one, I think, at this point.

• 2:38Joe Weisenthal?

  No, it's pretty, like, I totally agree with you about short sellers. I mean, I think, like, when you look at the broad history of markets, or particularly, you know, US markets over the last several decades, they basically go up and there's a lot of money to be made by just, like, you know, betting on the line go up. So I think you have to have like a sort of distinct personality type to think, oh, maybe there is some other interesting way to make money in this market besides betting on stocks going up. But it's an important service because, one, you know, as they will say, and I think there's probably something to it, shorting helps provide like price discovery. You can't just have everyone long. But then there's another layer that I think is very important, and this is the maybe connection to journalism.

• 3:21Joe Weisenthal?

  They often do a lot of work, right? They often have to do a lot of sort of what in a very slightly adjacent field, what might be like considered investigative journalism.

• 3:30Tracy Alloway?

  And sometimes they get a lot of pushback as well, which, you know, if you, if you go out and Google this particular guest when it comes to a company like Wirecard, like famously, she was being attacked on the streets of Manhattan and things like that. So just an incredible story and we're very lucky to have her on stage with us live at our show in London.

• 3:49Joe Weisenthal?

  Yeah, that's right. And in addition to talking about the sort of the life of a short seller, what it's like being a short seller, we also sort of learned some new news, which is that she is getting interested in the Korean market.

• 4:02Tracy Alloway?

  Yeah, she's actually going long for the first time ever and she's chosen Korea, which is a very hot market at the moment to do that. So our guest is Fahmi Quadir. She is the founder and CIO of Safcat Capital. She also has a cool nickname, the assassin. Really the perfect person to speak to. Go ahead and take a listen. In that introduction, I didn't actually even say one of the coolest things about you, because there are a lot, but you are famous for going up against Valiant and Wirecard and shorting those successfully. And you are also known as the assassin, which as someone who has always yearned for a cool nickname, I am very jealous of.

• 4:43Speaker 03

  Yeah, I guess ever since I got the nickname, so let you in on a little secret. I got that nickname before anyone knew who I was. It was a way to basically assign my research, my product, as it was being sent out to other short sellers and investors, because I was an unknown entity. So another short seller who knew who I was just said, let's call her the assassin. So it was sort of genderless, ageless, but it stuck.

• 5:10Joe Weisenthal?

  Tell me, what is, how would you describe Safcet Capital? What is the, we'll get into the details, but big picture, what is your firm?

• 5:17Speaker 03

  Yeah, so we launched in 2018 and we've traditionally focused on high conviction shorting. So our fund exclusively shorts, and I really mean that. We are only holding short positions. We're not allowed by fund mandate to go directionally long in any way, not hedge in any way. So we need to be really damn right on every position we take.

• 5:41Tracy Alloway?

  So what's client demand actually like at the moment? Because, you know, we were talking about short sellers kind of becoming a dying breed. If you think about someone like Jim Chanos, who we've had on the show a number of times, he basically, you know, closed his fund, converted it into a family office because he said no one was interested in shorting the market anymore.

• 6:01Speaker 03

  It's wild. I've been in this business as a short seller now for about 11 years. And I've seen multiple cycles of short sellers coming and going. And I have to say, it's never been an easy time. I think the institutional allocator community was interested in funding shorts back after the GFC. So that was the point where you had the rise of larger short bias funds, but years of underperformance meant that these allocators lost interest. So by the time I was launching in 2018, there was really limited Interest in funding shorts. Investors believed in short alpha. But the allocator community was really moving towards market neutral strategies. So it was never easy.

• 6:45Speaker 03

  And then, as we head into 2021 and everything with GameStop, the idea of having conviction short positions also became a huge risk.

• 6:53Joe Weisenthal?

  Yeah.

• 6:53Speaker 03

  Even if you're a short seller who never touched GameStop or any of the meme stocks, an allocator doesn't care because they just see the risk associated with concentration on the short side. So we got to a point where basically it became, there was no business case for running a short fund because no one was willing to pay you to do it. And sadly, it's probably a, it tells us something about where we are in the market cycle. So every day is a day about trying to evolve and stay in business.

• 7:24Joe Weisenthal?

  So how are you still here?

• 7:27Speaker 03

  Well, I think by the skin of my teeth. It isn't easy. I was fortunate enough to have picked investors who really gave me a lot of leeway to figure things out. But I would say since 2021, it's really been an existential crisis for me to understand, you know, what is the value of short selling in the golden age of fraud? Because the informational alpha we provide, the research that we do, that has to affect price discovery. Because ultimately, the role of a conviction short seller, or any short seller for that matter, whether you're a systematic algo or a market maker, is to provide liquidity and support price discovery. Right? And conviction short sellers do that, too. But the informational alpha components,

• 8:10Speaker 03

  it's just not affecting price discovery at this time the same way it has traditionally. So short sellers have had to be, essentially become factor investors like everyone else. We're chasing momentum and we're trying to find smaller windows of opportunity to make profit and de-risk our positions.

• 8:28Tracy Alloway?

  Wait, say more about the golden age of fraud. Because, I mean... It feels like grift is everywhere right now, so you could in theory find a bunch of targets, but on the other hand, it also feels like everyone is willing to ignore grift because they just want to grab on to the momentum and go along for the ride. What is the like target environment actually like for you?

• 8:53Speaker 03

  The target environment is very rich, of course, but the way you're actually timing the trades is very different.

• 9:00Tracy Alloway?

  Yeah.

• 9:01Speaker 03

  Historically, you could build conviction of position and you could at least have some small exposure to that over time and, you know, trade into certain catalysts that you see. You could ensure that your thesis is, materializes in the market some way. You could go to regulators and you could, you know, blow the whistle on some of these broads. But a lot of these levers that we traditionally had just don't exist anymore. Many of the contexts that I had are no longer in their old positions. So we've had to go more and focus on fundamental catalysts, which was always an important part of shorting. But

• 9:41Speaker 03

  now it's a lot more, and more than I necessarily like, focusing on what will happen during earnings, really trying to find the early signs of fundamental deterioration. But ultimately, you're waiting for the narrative to break and you're shorting on the way down. And it's always best, you make the most money on the short when your thesis is materializing and momentum is in your favor and you size into that. So as everyone is running for the exits, you're both shorting more and also covering your position. But as far as where we're shorting, our target, we tend to focus on the consumer a lot. And I think everyone's

• 10:20Speaker 03

  so focused with AI and a big part of that is unemployment. But the consumer is stressed. You know, headline figures not necessarily compared to, you know, pre-GFC, but if we look at household debt, you know, we're at 80% of income. But the more important number figure that's growing is debt servicing, which is at 11% of income. If you look at households that have a significant student loan burden, that figure is much, much higher and it's growing. And, and what we're seeing is sort of this bifurcation within households. So you have an older generation that's stabilizing, that's sort of this economic anchor. And then you have a younger generation that is stressed, that's facing greater unemployment.

• 11:05Speaker 03

  And this just generational wealth gap. And we're really focused on where is this consumer struggling? Because I think however we think about durable consumer cycles, that's all really going to change because of this bifurcation. So we're looking a lot into consumer adjacent businesses that have high funding needs. We really like levered rollups, which are generally always good.

• 11:30Tracy Alloway?

  There's a lot of those in the US.

• 11:32Speaker 03

  So levered rollups in the consumer discretionary space. But we're also looking a lot in healthcare, healthcare services. I think for the mid-long term, healthcare is going to be an important theme on the short side. Because yes, it's the golden age of fraud, but it's also the age of populism. And the themes around reimbursement, cost of care, and the systemic issues in the US healthcare system, these are here to stay. And I think as we lead into the midterms and into the next presidential, they're going to be important themes that we can invest on. For the past two years, I think investors have really gone full in to this sort of deregulation investment theme.

• 12:10Joe Weisenthal?

  Yeah.

• 12:11Speaker 03

  But the reality with deregulation is that it's almost like what I like as a short seller, like to call willful blindness. A lot of these businesses may look robust in this kind of environment, but those fundamentals depend on exploiting the consumer, price gouging. And these are behaviors where, you know, you won't be able to continue and sustain those in a more populist political atmosphere.

• 12:32Joe Weisenthal?

  This is great. Do you distinguish between, okay, you talk about rising household debt levels. You talk about these sort of fundamental drivers of reasons to think that businesses will decline. Is that a category difference versus, say, looking for companies that have something suspicious in their accounting? Like, is that a? A fundamentally different type of trade. Here is a company where the fundamentals are turning. Here is another company in which the numbers just don't look right. And you think that one day that people are going to discover that and it'll go to zero.

• 13:06Speaker 03

  I think there is definitely an alignment here because fraud is never good for business. And taking advantage of your consumer is also never good for business. So these things do converge. You know, if you look at consumer finance, these stocks have done really well lately. But if you're actually looking at the underlying assets and what's being securitized, it's not looking as good and loss recognition is really lagging. And again, this goes back to putting more pressure on an already stressed consumer. And a lot of these businesses that rely on price gouging and kind of taking advantage of a looser regulatory environment, they do so because they may have structural issues that they're already contending with. And the thing about businesses that are facing a structural decline,

• 13:51Speaker 03

  whether that's, you know, circumstantial or something that's, you know, fundamental and terminal, they will all turn to financial engineering. Because that's the only way they can try to mask the deterioration in the fundamentals of the business. So I would say that the safest shorts in this environment are companies where you have that sort of structural break, where the narrative is broken. You know, the company may try to acquire new businesses and say they're, you know, they're changing the story. But if the economics aren't following up and lining up with these acquisitions and you still can, you know, continue to see the fundamental deterioration, those are the shorts you can still, even in this market, sit in and ride, ride down.

• 14:34Tracy Alloway?

  You know, you mentioned levered private equity rollups. Can you give us your thoughts on private credit in general? Because we keep getting these sort of idiosyncratic blowups. You know, the things that Jamie Dimon refers to as cockroaches. And they seem idiosyncratic, but then they keep happening. And so it's kind of difficult not to ask the question about whether or not this is a more generalized issue.

• 14:56Speaker 03

  Everyone loves to talk about private credit. It's not necessarily a theme we look at because we are pretty idiosyncratic. So, you know, we are looking At it where it touches some of the consumer facing businesses that are getting, you know, credit from these business, from these lenders. But I think where I will, everyone likes to talk about the dot com mobile and, you know, the parallels to right now, but let's go further back to radio utilities and electrification. And if we look at the structure of those utility companies, the holding structure and like, there were layers of financing at each level and there was cash flows being recycled between each of these layers. And the thing was, it was an entirely black box. No one really knew what

• 15:41Speaker 03

  was going on. And that's kind of how I see things unfolding today, especially with, within AI and within the circular deals. You have a lot of money going around and what this is effectively doing, because we don't see everything. It's manufacturing to some extent, demand. That demand is driven by capital flows. So I think an important catalyst for the market will be the OpenAI IPO whenever that may happen, an informational catalyst, because we'll see, you know, the, the financial narratives will be laid bare.

• 16:16Tracy Alloway?

  You'll get the prospectus.

• 16:17Speaker 03

  Exactly.

• 16:18Tracy Alloway?

  Presumably a flow chart that kind of goes like this, but we'll see.

• 16:21Speaker 03

  Exactly. And, and I think investors then will be forced to reckon with how they've priced some of this demand. And maybe that will be an important, you know, repricing moment for the market in general.

• 16:47Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next. About the time it takes to grab a coffee. So search Barclays Brief wherever you get your podcasts.

• 17:13Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Maser. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 17:55Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 18:36Joe Weisenthal?

  Maybe, you know, a theoretical OpenAI IPO could be the top, maybe, you know, who knows, et cetera. Can you be a professional short seller but not be sort of temperamentally bearish? Do people conflate bearishness with proclivity to short?

• 18:52Speaker 03

  Yeah, because I think most short sellers I know are not bearish the market. And if you ever look at some of the things that short sellers go long, sometimes it's highly speculative, momentum-driven stuff. And many short sellers are, again, hedging their shorts versus the market, right? And are not long, not net short. But for me, and I speak for myself, I don't speak for other short sellers, short selling is about identifying things that are broken in the market. You mentioned, you know, golden age of fraud, age of grift. We don't necessarily have anyone looking for these breaks, for these things that are failings, for these misrepresentations.

• 19:34Speaker 03

  We're all just so concerned with chasing money and chasing profit that a lot of this gets thrown by the wayside. And short selling is the one way where we're kind of pushing back. It's pushing back against this, you know, amoral drift towards, you know, financial nihilism, whatever you want to call it. And right now, I would say short sellers are one of the only and one of the last arbiters of like market-based corporate government.

• 19:59Joe Weisenthal?

  It doesn't feel like there's many rules these days.

• 20:02Speaker 03

  There are rules, but whether...

• 20:04Joe Weisenthal?

  Oh, enforced rules.

• 20:05Speaker 03

  Enforced rules. So the SEC, for example, enforcement activity, enforcement actions for the SEC from '23 to '24 dropped, I believe, 26%. And then the following year dropped another 22%. So I want to say, you know, this isn't something that's tied to a single administration. It really is tied to pro-cyclicality because no regulator wants to stand in the way of something as big as the AI boom. And it's always in the aftermath that we realize this.

• 20:36Tracy Alloway?

  What's your top tip for uncovering a short? And the reason I ask this is because I remember there's a hedge fund manager who has never been on the show, but one can dream. But his whole, like, his whole strategy, as he described it to me, he always said, "Follow the bad people." Because if bad people show up at one company, assuming they don't go to jail, and a lot of them don't, they go on to the next company, and there's a tendency for things to go awry there as well. And so if you just follow those personalities from thing to thing to thing, you can spot a pattern there. What's your sort of, I guess, secret pattern sauce when it comes to finding these things?

• 21:15Speaker 03

  If only it was simple as just one thing. Of course, following people matters. Following money, investor quality also matters. Who's funding this business? In this market especially, you have to be weary of the dependency on narratives, right? There are health... Companies that are using narratives to explain their economics. But then there are dodgy and failing companies that are using narratives to explain away their economics. So you have to be able to tell the difference. We tend to follow sectors where you have some sort of structural component that is going to put pressure on the business because that is really the test of your management. You know, their governance and their ability to, when they are dealing with pressure,

• 21:57Speaker 03

  do they turn to fraud and financial engineering and potentially financial fraud, accounting shenanigans? Or are they transparent about their problems and they face the repricing themselves? But I would say what we really focus on, and this kind of goes along the lines of people. In cases of terminal fraud especially, where you're going to have fraud at a systemic level. So it's going to go all the way up to the top. It's the people that are running that business that are somehow rotten. You need to understand how they think. And it's this behavioral component where you have to understand what the pressures on them are. Because many times that is not the stock. There's going to be other exogenous factors that are worrying them

• 22:43Speaker 03

  when the house of cards is starting to fall in on them. And I'll use an example for your audience. You know, we're in London, so you guys all probably know about Wirecard. You know, the headline of Wirecard was always, you know, with the Financial Times and the accounting fraud. In the aftermath, we all know now that the co-founder of Wirecard was a Russian spy. And you know, from our research, it was always about the money laundering. And that basically the business was built around money laundering. So apart from what the Financial Times was doing on the accounting side with Wirecard Asia, we were looking at Wirecard's business in the US. And this was a part of the market, you know, no one really followed. But the kingpin, the fixer, as I'd like to call him, for Wirecard's business through the US with US dollars

• 23:28Speaker 03

  was this guy who was actually best friends with Jan Marsilik, the Russian spy, co-founder of Wirecard. So we presented information on him. And it was, I believe it was towards the end of March 2020, when we were following, you know, the docket every day in the Southern District of New York. And we saw finally, there's like an arrest warrant out for this guy, who is the best friend of Jan Marsilik.

• 23:57Speaker 03

  And this was something the market is not following. You know, while this is all happening, Wirecard is saying everything is all OK. Wirecard is putting out press statements saying that I don't, I'm just not a good, I'm not a good analyst. That's why I think it's money laundering. But his best friend was arrested. And after that happened, there was a psychological collapse. You know, a few weeks later, it was Jan Marzlik's birthday party. He was chugging bottles of vodka, rolling around on the floor, not sure what to do with himself.

• 24:27Tracy Alloway?

  Bad sign.

• 24:28Speaker 03

  Bad sign. And then, within a month and a half, $2 billion missing, Wirecard goes bust. So it's about understanding, what are these pressure points? What will actually make these guys sweat?

• 24:40Joe Weisenthal?

  Let's pivot a little bit, because you're also interested and deeply knowledgeable in investing in probably the world's most interesting and exciting stock market, which is Korea, which is interesting, I think, for two reasons. One, because of the chips, and we know they're making a ton of money from AI. But also, just sort of changes in corporate governance and attitudes towards the stock market, period. What should everyone know about how the Korean stock market works?

• 25:08Speaker 03

  Yeah, so just to take it a step back, because, you know, this is my first time going long. So, uh...

• 25:16Tracy Alloway?

  Wait, no, this is big news.

• 25:17Joe Weisenthal?

  Yeah, this is big news.

• 25:18Tracy Alloway?

  You've never gone long before.

• 25:19Speaker 03

  I've never gone long before, yeah.

• 25:21Joe Weisenthal?

  Wow. You're finally gonna make, finally gonna join the party.

• 25:25Tracy Alloway?

  But how should we think about this? Like, is this capitulation? Like, does this say more about the short strategy than it does about the Korean market?

• 25:32Speaker 03

  So that's, that's what I want to say. I wouldn't read too much into this as like, the last short seller puts, you know, throws in the towel. That's not what this is. You know, obviously, you know, thinking back to just the business landscape for short sellers and the funding environment for short sellers, it's really about thinking about my identity as a short seller and what do I want my legacy in the markets to be? Yeah, I love being the assassin, and there's, you know, I have great pride in helping talk, you know, bring up the discussion of drug pricing, bringing down a money laundering organization. These things are important to me, but... You know, my skills have more utility than just that. And that was a starting point. You know, how do I use my skills in the golden age of fraud?

• 26:15Speaker 03

  You know, if I can't go and whistleblow on companies in the US, in the West, then where can I go? Who wants to see me use these skills? Who will value me? And for a long time, I'm a bit of a capital markets reform geek, especially when it refers like, as far as like short selling regulations. So I follow any developments related to short selling. And I believe it was like November 23 that Korea banned short selling. So it's, you know, alarm going off in my head and Korea's on my radar. So because whatever is happening there is going to be interesting, you know, good or bad. At that time, I was thinking of it potentially as a place I would want to go short sometime.

• 26:58Speaker 03

  But then I started to learn more about Korea and what was happening there. And it's, you know, we've all been touched by Korean culture somehow. You know, Korean food, K-pop, K-drama. And Korea is such an interesting country to me because it's really developed its national identity after World War II, in the face of globalization. So as we've seen the rise of globalization, we've seen the rise of Korea. And we see it as this really sophisticated manufacturing-based economy that exports a lot. But at the end of the day, technically, it's still an emerging market, which is crazy. And if you look at the political history of Korea, most presidents have been investigated, prosecuted, exiled.

• 27:42Tracy Alloway?

  The politics are very EM-coded.

• 27:45Speaker 03

  Exactly. And that is crazy, but at the same time, most chairmen of Samsung have also been investigated, prosecuted, and sometimes jailed, and sometimes pardoned. So there's this idea of accountability and a certain expectation that the Korean public has on its institutions. And this arises from a Korean value called chemion, which is face, basically the face that you show to the world. And it's through this concept and through this. I really started to understand the market very well. I spent, you know, a lot of time there. As I'm looking to launch this new fund, we're looking to do long shareholder activism in Korea.

• 28:30Speaker 03

  But in the aftermath of this short selling ban, after the Democratic administration came into a position, they've made a really concerted effort to fix a lot of the structural issues that were holding Korea back, especially Korean markets. There's a big focus on deepening the FX market, stabilizing the yuan, encouraging domestic equity flows, and of course, modernizing corporate governance. And it's on this last point where I feel like I can really add value. And it's really exciting for me to be a part of the transformation there.

• 29:07Tracy Alloway?

  Wait, so give us an example of what improving corporate governance in Korea would look like. How do you, you know, we're talking about it in the same language as going short, but maybe that stands up your point. Like, how do you identify a target and what you can actually do here?

• 29:23Speaker 03

  I want to first say that stock price has not been the guiding factor of Korean companies. You know, I mentioned these utilities holding companies before. That was back in the 1920s in the US, before the establishment of the SEC. Well, Korean companies have looked like that through most of, you know, the modern era. And it was only this past year, not even a full year ago, that Korea enshrined the rights of shareholders into their corporate code. So companies now have a fiduciary duty to shareholders to provide fair and equitable treatment.

• 30:03Speaker 03

  So there's now, this idea of shemyeon now applies to stock price. And that is going to change a lot of the behavior of how companies act and how these holding companies and these families that run them, the trebles, how they act. Korea has been dominated by these trebles. And one of the main things that they've been trying to avoid is inheritance tax. So a lot of the governance issues have been related to different structured transactions they would do to depress the value of the assets in order to minimize their inheritance tax burden. But now they realize they can't do this.

• 30:40Tracy Alloway?

  It's like a fraud in the other direction, kind of, right?

• 30:43Speaker 03

  Exactly, yeah, exactly. So it's a fraud to make things cheaper, not more expensive.

• 30:47Tracy Alloway?

  Right.

• 30:48Speaker 03

  And that's really interesting for me because I have an expertise in fraud and I can actually unlock that discount, that value, from these businesses. But the other interesting dynamic with these troubles is that they're now either entering or exiting their third succession. So you have a new generation of owners that are much more globally oriented. They're looking at what's happening in US markets. They're much more capital aware. They start seeing the prestige behind having a big, a high stock price. So they're much more willing to engage. So the companies that I'm looking at in Korea are not the ones that are the high flyers. I'm not looking at Samsung and SK Hynix.

• 31:32Speaker 03

  I think they know what they're doing. I'm looking at the businesses that don't have as much experience with foreign markets that have sort of been bogged down by these corporate structures over the past couple of years. And this new generation doesn't really know how to rid themselves of that history. Because the thing about the Korean investing public is they're very passionate. And traditionally, these Korean retail investors have stayed away from Korean equities because of the bad experience holding these trouble companies that have these depressed value. But now, actually, the financial regulator just announced recently that if you are a company on the COSPI where you're trading below book value, you will be named and shamed.

• 32:17Speaker 03

  So that will be a great place to start.

• 32:19Tracy Alloway?

  That is a change, yeah.

• 32:21Joe Weisenthal?

  Punish companies for being too cheap. So you talk about this generational change. Is it true what they say about Korean retail traders? They have a reputation for they really like to place bets. That's what people talk about online. Is that true about the trading public in Korea?

• 32:40Speaker 03

  Yeah, so I've been fortunate enough to spend a lot of time with retail investors there. And you definitely do have a younger generation of retail investors that's very digitally connected. And they are certainly trading, they're trading meme stocks. They're proud to have their triple levered ETFs, single stock ETFs.

• 32:58Joe Weisenthal?

  This is what the reputation, yeah.

• 32:59Speaker 03

  So they're there, they're noisy, but they're not the largest part of the retail public. The largest part are traditional value investors who've really tried to build generational wealth through their accounts. And they've stayed away from Korean equities, again, because of what they viewed as value destruction. And suddenly, now, because of the incentives and because of these structural changes that are happening, those investors are now starting to buy into Korean equities.

• 33:29Tracy Alloway?

  All right, Fammy, thank you so much for coming on Odd Lots and explaining your new strategy. It sounds fascinating and we appreciate it. Thank you so much.

• 33:37Speaker 03

  Thank you.

• 33:52Tracy Alloway?

  That was our conversation, recorded live in London on May 7. All right, shall we leave it there?

• 33:56Joe Weisenthal?

  Let's leave it there.

• 33:57Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 34:02Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at TheStalwart. Follow our producers, Carmen Rodriguez at CarmenArmin, Dashil Bennett at Dashbot, Cale Brooks at CaleBrooks, and Kevin Lozano at KevinLloydLozano. And for more Odd Lots content, go to Bloomberg.com/oddlots, where we have a daily newsletter and all of our episodes. You can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 34:26Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk to the vanishing breed that is the short seller, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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