European Short Disclosure February 2013

December 2012 was a challenging month for generating alpha through short activity in Europe. Managers who took a bearish stance on the region faced both systematic and idiosyncratic pressures in their short positions as the European market rallied and heavily-shorted names rallied at a greater rate than the market.

Managers that used individual names to hedge their long books found themselves in crowded trades and susceptible to a “short squeeze,” or technical run-up, as other traders moved to cover their rallying short positions. Finally, a few corporate deals with high participation simply did not pan out as planned for many managers.