Prominent short-selling firm Muddy Waters Research is reportedly adjusting its fee structure to cope with rising security costs. Sources close to the firm told Business Insider that the new fee could be as high as 0.1%, with the funds going towards security-related expenses.
Additional fees can be as high as 0.1%.
Sources say the fee will be collected from the funders who support Muddy Waters Research, with the organization's management also sharing some of the security costs. The source indicated that the decision was not triggered by a single incident, but rather based on rising overall security concerns.
Muddy Waters Research declined to comment. According to regulatory filings, the firm manages over $500 million in assets.
Long-term open short selling brings higher risk of confrontation.
Muddy Waters Research is known for its publicly released short-selling reports and has a long-standing focus on investigating corporate fraud. It gained market attention early on by exposing problems at some Chinese companies listed in the US and Hong Kong, which makes it easier for it to come into conflict with the companies it targets and related parties in its public actions.
Such contrarian investment strategies often gain recognition afterward, but during the operation, managers typically face greater pressure from public opinion, legal issues, and personal safety concerns. The article states that rising security costs are a direct reflection of this changing environment.
The number of active short-selling institutions has been shrinking in recent years.
The article also mentions that the number of asset management firms specializing in active short selling has decreased significantly in recent years. Data from industry tracking firm Breakout Point shows that the number of aggressive short sellers has declined by more than 30% since 2020.
In recent years, several well-known industry institutions have withdrawn from the short-selling market. At the same time, in addition to facing performance pressure from a rising market, short sellers also face multiple challenges from corporate executives, retail investors, and regulatory enforcement.
Elon Musk, CEO of Tesla, has publicly criticized investors who shorted his company's stock. A short squeeze driven by retail investors on Reddit previously dealt a heavy blow to Melvin Capital. The article also mentions that Andrew Left, founder of short-selling firm Citron Research, was convicted of securities fraud in June of this year, which some market participants see as another sign of pressure on the industry.
