Despite its populist renown, GM has long been controlled by institutional investors. That's never been truer than now, as hedge funds specializing in distressed securities and so-called event-driven situations pile in with an increasingly complex palette of exotic wagers that embrace its common stock, convertible securities and bonds. While GM still boasts a high number of individual investors, they operate in a wonderland of esoteric gambles that could end up deciding the automaker's fate.
There is a lot to gamble on: Questions about whether GM can avoid bankruptcy, sell GMAC, and manage to avert a strike are all behind some kind of hedge fund trade.
Much of the trading involves GM's voluminous publicly traded debt, a breed of securities that is effectively out of reach to the average individual investor. In many cases, however, these trades are either hedged or coupled with positions in the common -- and unwary investors can easily find themselves being pulled around by the tail when one of them moves.A lot of short-selling is in place, hedge fund managers note. About 15% of the company's float represents short interest, or bets that the stock will fall -- a pretty high figure. The short-interest ratio, as measured by the amount of short sales divided by the daily volume of shares, is only 5.51%, but this relatively low figure attests to the stock's high volume more than low short selling, says a hedge fund manager. He compares those numbers with another large-cap name, Pepsico (PEP ), which has 1.7 billion of outstanding shares, 5.6 million of short shares and a daily volume of 4 million shares. The percentage of shorts is only 0.3% in the case of Pepsico and the short-interest ratio is 1.5%.