The Small Hedge Funds That Won Big by Betting Against Shale
Long before the pandemic, they were already skeptical of oil and gas producers’ finances.
Workers extracting oil from wells in the Permian Basin in Midland, Texas.
Photographer: Benjamin Lowy/Getty Images
When Billy Bailey first pitched betting against shale stocks to oil tycoon T. Boone Pickens, crude prices were above $70 a barrel and the fracking boom was in the first few years of its life. Bailey was sitting in a booth across from Pickens at R+D Kitchen in Dallas, asking his boss if he, at 28, could become sole manager of a “long-short” portfolio within Pickens’s now-shuttered hedge fund, BP Capital. Long-short portfolios mix conventional investments in equities with short positions—contracts that make money when a stock falls in value.
It was November 2014, one week before OPEC would surprise the market by failing to reach a deal to curb supply, exacerbating a downturn in oil prices that would last the next two years. Bailey got the job and tilted the portfolio more toward shorting shale producers.