"This creates a feedback loop by which management can enrich themselves simply by pushing for the markup in value of unrealized investments," the Glaucus report said.

The Brisbane-based fund manager upgraded its fee-earning assets under management guidance at its interim results, which were well-received by the market at the time, sparking the biggest rally in its shares for more than a year. Earlier this month, the company raised $100 million at $11.50 a share.

According to the corporate regulator's tally of short interest in the market, current as of March 21, 4.26 per cent of the Blue Sky register was reported as being in the hands of short-sellers.

Hedge funds have also alluded to icy relations between Blue Sky and short-sellers.

In the weeks following its results and capital raising, short-sellers have increased their bets against the company. The increased interest is understood to have been sparked by a decline in the number of reported exits, and pending accounting changes related to the standard known as AASB 15, which covers revenue from contracts with customers.

Market sources said that it has become difficult to access Blue Sky stock to borrow, and that the price of borrowing has increased. Sources also said that Blue Sky went to significant lengths to identify which funds were shorting the company so that they could instruct brokers not to allocate short-sellers stock in the recent capital raising.

The fund manager retains a high profile backer and shareholder in its retired founder, Mark Sowerby, who said on Wednesday: "This is a good business run by good people."

Glaucus accuses Blue Sky of over-charging investors in its alternative strategies, which spans private equity to real estate interests, a practice it decries as being unsustainable.


"We believe Blue Sky compensates for its overstated AUM by charging clients egregious management fees, which can reach up to [17 per cent] of the capital invested in Blue Sky funds and are charged irrespective of the performance of the underlying investment," the short-seller wrote.

Referencing the company's reported 15 per cent internal rate of return after fees since inception in 2006, "if such returns are true, Blue Sky is one of the best asset managers in the entire world," the report says, concluding that it has only exited a small number of investments, citing 39, where most of them were residential property developments.

In reaching its valuation estimate of $2.66 a share, Glaucus applied a 20 per cent corporate governance discount from a $3.33 stock price derived from its approximation of maximum fee-earning assets under management of $1.5 billion. Glaucus also suggested the market value of Blue Sky appeared expensive, fetching a premium relative to bigger peers such as Carlyle and Oaktree.

Blue Sky also highlighted to the market the language of Glaucus's report which says "we will make money if the price of Blue Sky stock declines" and its characterisation of research as "opinion".

The Blue Sky model invites co-investment with external investors. In its market update of March 26, the number of institutional investors that invest in its funds reached 20.