White Square Capital, led by former Paulson trader Florian Kronawitter, told investors it will shut down its main fund and return capital this month after a review of its business model, according to people familiar with the fund and a letter to investors.
White Square, which at its peak managed around $ 440 million in assets, had bet against GameStop, people familiar with its positioning say, and suffered double-digit losses in January.
The move marks one of the first closings of a hedge fund hit by huge increases in so-called memes stocks. Retail investors, often coordinating their actions on online forums such as Reddit’s r / WallStreetBets and in some cases deliberately targeting hedge fund short sellers, have driven up the price of stocks such as GameStop and the AMC Entertainment movie channel in January and again in recent weeks. . GameStop, for example, went from under $ 20 at the start of the year to over $ 480 at its peak in January.
This resulted in heavy losses for some funds, including US-based Melvin Capital, run by Steve Cohen’s protégé Gabe Plotkin, and Light Street Capital, run by Glen Kacher, a former Tiger Cub who worked at Tiger. Management by Julian Robertson. However, the funds remain in business and shortly after his losses Melvin received a $ 2.75 billion investment from Cohen’s Point72 Asset Management and Ken Griffin’s Citadel.
“The decision to close has to do with the questioning of the long-short equity model,” Kronawitter said.
“There are too many fish in the pond with the same long-short strategy,” he added. “The traditional advantage is disappearing [eroded by other investors], there is an excess supply of capital.
A person close to the fund said the decision to close was unrelated to the stock rally itself. The fund rebounded quickly from the January turmoil and recouped “a fair share” of the losses, the person added.
Among other affected funds, Melvin was still down about 44.7% this year at the end of last month, while Light Street was down about 20.1%.
Kronawitter, who previously worked for US billionaire John Paulson and Merrill Lynch’s hedge fund, had double-digit gains in White Square in 2015 and 2016, said a person who saw the numbers, while last year, he made about 19%.
In the letter to investors announcing the fund’s closure, White Square said that last year, despite the good performance that year, two large investors chose to withdraw their money and put it in cheap passive funds. or private investment funds. “We have seen first-hand the shift in the trend of investing in hedge funds towards cheaper alternatives,” he added.
According to the letter, White Square was due to receive streams from investors again in May of this year, but instead decided to shut down the fund.
“The opportunities for arbitrage have diminished both with the onslaught of capital triggered by the central bank’s monetary interventions, as well as with a much better dissemination of information, raising the question of how much the same charges can be justified, ”he said.