The Intellidex report on activist short selling in general and Viceroy Research in particular raised some serious questions about both the quality and the source of Viceroy’s research. Neither of these are new concerns, but they have not been explored as thoroughly as they were by Intellidex.
The report makes the point that: “Prior to Viceroy’s research report on Steinhoff, its research received little media attention internationally. The Steinhoff report, however, received significant coverage and thereafter there was extensive mention of Viceroy in the media.”
This is important because Intellidex argues that Viceroy’s reputation was built on research that was, in fact, ‘substantially plagiarised’ from somewhere else. The firm’s report on Steinhoff bears striking similarities to a report released by hedge fund manager Portsea Asset Management six months earlier.
This calls Viceroy’s credibility as a whole into question. Particularly since, as Intellidex argues: “Viceroy’s quality of research, which was already patchy, appears to us to have deteriorated after the Steinhoff report”.
It is therefore not surprising that Viceroy responded sharply to the Intellidex report. On Twitter, Viceroy’s head of research, Fraser Perring, called it “shockingly poor report writing” and “an unfortunate failed smear piece”.
Shockingly poor report writing, that appears to lack any fact-checking by @intellidex research. Stuart Theobold aka @rationalhill cant even name @GlaucusResearch correctly or @viceroyresearch member names. An unfortunate failed smear piece. #TFS #desperate Didn't TFS ZERO? pic.twitter.com/ykPaE8NIQp
— Realistic Principles (@AIMhonesty) July 12, 2018
Viceroy also released a statement in which it argued that Intellidex did “not disprove any of our published work”.
Viceroy’s response did not however answer four important questions:
1. Was the Steinhoff report plagiarised?
This is one of the key findings of the Intellidex research. Viceroy does not however rebut it.
Its response notes that it receives “significant amounts of anonymous data” and it incorporates “independently verifiable data” into its reports, and this was the case with Steinhoff. However, it does not explain why it claimed that the data that came from Portsea was its own, or why there is no acknowledgement of Portsea anywhere in the report.
2. Who is actually conducting its research?
Intellidex notes that some of Viceroy’s research is too technical or scientific to conceivably have been conducted by the three individuals in the firm alone. Its output is also too prolific to come from a single, small team.
Viceroy argued in response that it “has a network of industry consultants which are utilized on a case-by-case basis under strict non-disclosure agreements”.
However, while it is common for the industry to use outside specialists, Intellidex points out that it is “not commonplace to then use this work without attribution or any description of the expertise that contributed to the report”, as Viceroy has done. The firm fails to explain why it avoids doing so.
3. What is Viceroy’s business model?
A key concern that Viceroy has to answer is how it makes enough money to afford the costs of its research. It states that its work is “funded internally”, but doesn’t explain what that means.
Does it have a huge balance sheet thanks to the largesse of a mysterious benefactor, or is it making money somehow? If so, how?
Intellidex notes that Viceroy has “never provided details on its business model”, and particularly whether it is rewarded by institutional short sellers if stock prices are affected by its reports. This is obviously critical in understanding its motivations.
4. What is Viceroy’s relationship with regulators?
Intellidex makes the point that, as far as it can tell, Viceroy is not a regulated entity in any jurisdiction.
In its response, however, the firm argued that it “is currently a key witness to regulators internationally. We have never shied away from regulators and are actively assisting them in their pursuit of criminal prosecutions. It is ironic given these circumstances that Intellidex – directly or indirectly – claim that we are somehow hiding away from regulators. We are regulated, as is any other player in financial markets: any assertion otherwise is ridiculous”.
It does not, however, produce any evidence of its regulated status. It is therefore unclear what it means by this.
Perring did not respond to requests from Moneyweb for comment.