The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Thu, 09 Apr 2026 11:32:53 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.8 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png The Rise of the Net-Short Debt Activist – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 The Rise of the Net-Short Debt Activist https://corpgov.law.harvard.edu/2018/08/07/the-rise-of-the-net-short-debt-activist/?utm_source=rss&utm_medium=rss&utm_campaign=the-rise-of-the-net-short-debt-activist https://corpgov.law.harvard.edu/2018/08/07/the-rise-of-the-net-short-debt-activist/#comments Tue, 07 Aug 2018 13:01:53 +0000 https://corpgov.law.harvard.edu/?p=109736?d=20180808145911EDT Posted by Joshua A. Feltman, Emil A. Kleinhaus, and John R. Sobolewski, Wachtell, Lipton, Rosen & Katz, on Tuesday, August 7, 2018
Editor's Note:

Joshua A. Feltman, Emil A. Kleinhaus, and John R. Sobolewski are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Feltman, Mr. Kleinhaus, and Mr. Sobolewski.

Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).

The market for corporate debt does not immediately lend itself to the same kind of “activism” found in equity markets. Bondholders, unlike shareholders, do not elect a company’s board or vote on major transactions. Rather, their relationship with their borrower is governed primarily by contract. Investors typically buy corporate debt in the hope that, without any action on their part, the company will meet its obligations, including payment in full at maturity.

In recent years, however, we have seen the rise of a new type of debt investor that defies this traditional model. As we previewed here, this investor buys “long” positions in corporate debt not to make money on those positions, but instead to assert defaults that will enable the investor to profit on a larger “short” position. We call this investor a “net-short debt activist.”

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