In January, a little-known hedge fund rose from obscurity to declare war on one of the world's richest men. Only months later, Hindenburg Research is at it again, taking aim at a legend of wall street.

Founded in 2017, Hindenburg Research derives its name from the German airship LZ 129 Hindenburg, which famously exploded upon landing in 1937.

In line with its name, Hindenburg seeks out financial “manmade disasters” and bets against these companies by short-selling their stock. Their strategy involves compiling damning reports on these companies, often exposing accounting fraud, illegal activity, and misleading investors.

Hindenburg’s critics have accused them of using misinformation to achieve windfall profits, while their proponents praise them for exposing fraud and deception. If Hindenburg continues on their current trajectory, they will inevitably become a household name in the very near future.

Hindenburg’s first report targeted the electric vehicle company Nikola. This report exposed a wide array of lies and exaggerations around the effectiveness of Nikola’s prototype hydrogen fuel cells.

This included a video which appeared to show a Nikola prototype cruising at high speed along an empty road. In reality, the truck had been rolled down a gentle slope, powered by nothing but gravity.

Hindenburg’s report led to the arrest and subsequent conviction of Nikola’s CEO and founder, Trevor Milton, for fraud. Nikola’s stock now trades at $0.80, down from a peak of over $70. It’s likely that Nikola’s misleading of investors would eventually have come to light, but Hindenburg’s report allowed investors to get out of the company and cut their losses early. While giving Hindenburg an exceptional return, this short sale helped to eliminate a bad actor from the market and reallocate capital to businesses which provide real value to the economy.

Hindenburg’s 2022 report on the Adani Group is their most publicised to date. The enormous Indian conglomerate operates everything from port management to energy generation throughout India.

Hindenburg alleged that Adani was “pulling the largest con in corporate history”. This caused the group to lose 108 Billion USD of value across their various businesses. Adani fought back against Hindenburg by attempting to paint their report as a “calculated attack on India”.

Hindenburg has now leveraged their newfound fame and released another bombshell report. The subject of this report is legendary activist investor Carl Icahn’s firm, Icahn Industries. Hindenburg likened Icahn Enterprises to a Ponzi scheme, claiming that Icahn “has been using money taken in from new investors to pay out dividends to old investors”.

They also noted that Ichan Enterprises appeared to be highly overvalued. Its stock trades at a 218% premium to its net asset value. This is particularly suspicious because most similar holding companies trade at a 5 to 20 per cent discount to their NAV, reflecting the management fees incurred.

In the 48 hours following the release of this report, Icahn’s stock is down 36% since the release of the report, and on the 10th of May, federal prosecutors opened an investigation into the firm. This report has also triggered the largest backlash of any released by Hindenburg. Icahn, known for his aggressive tactics and outspokenness, lashed out at Hindenburg, stating, “Hindenburg Research, founded by Nathan Anderson, would be more aptly named Blitzkrieg Research given its tactics of wantonly destroying property and harming innocent civilians.”

Hindenburg’s staggering success is somewhat of a mystery. Despite their skyrocketing popularity, Hindenburg remains a ‘black box’. The size and leverage of their positions are publicly unknown.

Additionally, founder Nathan Anderson is an anomaly among his hedge fund manager peers. He attended the University of Connecticut before working as an ambulance medic in Israel. Anderson then worked in public policy in Jerusalem before returning to the U.S. to work as a salesman at the data company FactSet.

Anderson has criticised mainstream institutional investors' conformity, calling their analysis “run-of-the-mill”. It’s clear that Anderson’s style of analysis is anything but.

Hindenburg’s forensic approach to research often uses sources which would look more at home in a CIA intelligence briefing rather than an equity research report. Examples of this include leaked emails, whistleblowers and recorded phone conversations.

Short-selling can be extremely risky. The strategy relies on large sell-offs to generate returns, and firms such as Hindenburg likely operate with a high degree of leverage, making their potential losses enormous.

Additionally, their unorthodox tactics mean that Hindenburg is treading a fine legal line. Many of their targets have in the past attempted legal action. Considering Hindenburg has wiped hundreds of billions off their targets’ market capitalisations, a successful lawsuit could ruin them.

However, none have succeeded so far, and Hindenburg is careful never to make claims that they can not back up. Evidence of this is the multiple federal investigations that their research has sparked.

Anderson’s ability to sniff out fraud and malpractice where nobody else has thought to look is sure to make Hindenburg a giant among activist investors. Hindenburg’s capacity to effectively profit from these companies will only increase as their public profile grows, exposing their reports to more and more investors.

The fact that Hindenburg keeps the details of their positions private also works in their favour. The public doesn’t know at what point Hindenburg has cashed out their short positions or if they have at all. This helps to prevent “short squeezes” or similar counteractions from other firms.

While this secrecy also means that no prediction of their future success can be certain, their astonishing track record positions them as one of the most interesting and promising hedge funds in the world.

Hindenburg has shown no signs of slowing down. If their rise to power continues, they are bound to be a titan of wall street in no time.

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