A London hedge fund that suffered losses betting against US retailer GameStop during Mimi’s first rally in January closes its doors.
White Square Capital, run by Florian Kronwetter, a former Paulson & Co trader, has told investors it will close its main fund and return capital this month after reviewing its business model, according to people familiar with the fund and a letter to investors.
White Square, which at its peak managed about $440 million in assets, bet GameStop, people familiar with its site say, and incurred double-digit losses in January.
The move represented one of the first shutdowns of a hedge fund that was hit by massive increases in so-called MIM stocks. Individual investors, who often coordinate their actions on online forums like Reddit’s r/WallStreetBets and in some cases deliberately target short hedge fund sellers, have driven up stock prices like GameStop and movie chain AMC Entertainment in January and again in recent weeks. For example, GameStop’s value rose from less than $20 at the beginning of the year to more than $480 at its peak in January.
This led to Big losses For some funds, including US-based Melvin Capital, which is managed by Steve Cohen and protege Gabe Plotkin, and Light Street Capital, managed by Glenn Kutcher, a former tiger cub who worked in the tiger management of Julian Robertson. However, the funds are still running, and soon after their losses, Melvin received a $2.75 billion investment From Cohen’s Point72 Asset Management and Ken Griffin Castle.
“The decision to close is related to the thinking that the long-term equity model is being challenged,” said Cronwetter.
“There are a lot of fish in the pond with the same Long-Short strategy,” he added. “The traditional edge is pushed away [eroded by other investors]There is an oversupply of capital.
A person close to the fund said the decision to close had nothing to do with Mimi’s stock rally. The source added that the fund rebounded quickly in the wake of the turmoil in January and returned a “fair share” of losses.
Among the other chests that hit, Melvin was still down about 44.7 percent This year to the end of last month, while the Light Street index is down about 20.1 percent.
Kronowater, who previously worked for US hedge fund billionaire John Paulson and Merrill Lynch, made double-digit gains in White Square in 2015 and 2016, a person familiar with the numbers said, while last year it made about 19 percent.
In an investor letter announcing the fund’s closing, White Square said that in the past year, despite the strong performance of that year, two large investors chose to withdraw their money and put it in cheap funds or private equity. “We’ve seen firsthand the shift away from investing in hedge funds to cheaper alternatives,” she added.
According to the letter, White Square was scheduled to receive investor inflows again in May this year, but decided instead to close the fund.
“Arbitrage opportunities have diminished with both the onslaught of capital caused by central bank monetary interventions, as well as better information dissemination, raising the question to what degree the same fees can be justified,” the report said.