Goldman’s Ehrlich claims hedge funds do not move markets

Goldman Sachs’ London-based head of prime brokerage in Europe and Asia, Alexander Ehrlich, has claimed there is no apparent correlation between the volume of short selling of stocks by hedge funds and market direction and volatility.

Ehrlich, who was speaking at Borsa Italiana’s second annual hedge fund conference in Milan last week, added: “We have seen no evidence of hedge funds ganging-up either.” He said he drew these conclusions after scrutinising Goldman’s book prior to recent discussions with regulators about the impact of short-selling hedge funds on stockmarket performance.

Dealers estimate that Goldman handles around one-quarter of Europe’s short-selling activity. Ehrlich's opinions contrast with those of several large traditional fund managers that claimed short selling by hedge funds was driving down stock markets and causing financial instability. Back in July, two Dutch pension fund managers, PGGM and ABP, said they would no longer lend stocks to hedge funds.

David Prosser, chief executive of UK financial services firm Legal & General, also criticised short selling, claiming it worked against the interests of long-term investors.

Ehrlich is also co-chief operating officer of Goldman Sachs’ global securities service business that encompasses securities lending alongside prime brokerage.