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One of Wall Street’s most prominent bears, Jim Chanos, has told his supporters that he is closing his flagship short-focused hedge funds after more than three decades.
Chanos is best known for his bet against Enron, the energy retailer that collapsed in 2001, as well as his more recent but unsuccessful campaign against electric car maker Tesla, which he described as a “circus.”
In a letter to investors obtained by the Financial Times, Chanos wrote: “It is no secret that the long/short equity business model has come under pressure and interest in fundamental stock pickers has waned.”
He added: “While my passion for research and investing remains strong, I feel compelled to pursue these passions in a different construct.”
Chanos, 66, said most of the funds would be returned to investors by the end of the year. He will continue to provide tailored advice on basic short ideas as well as some macroeconomic insights.
His decision to close the funds was first reported by The Wall Street Journal.
“Even in the face of several years of market euphoria, we have worked hard to meet your and our collective expectations,” Chanos said.
In his letter, he said his short holdings have had an annual alpha – outperformance compared to broad market indexes such as the S&P 500 and the Russell 2000 – of about 8 percent since the market bottom in 2018 and of more than over the past three years would have generated 20 percent.
“These results continue to outperform virtually all hedge fund industry return indices despite zero interest rate policies, meme stock mania and much more,” he added.
Short sellers seek to profit from falling prices by borrowing shares and betting that their value will decline until they are redeemed. Although it is a well-established element of financial markets, it has always caused controversy, often from the executives of the targeted companies.
Chanos’ relatively high public profile contrasts with the cautious approach of many short sellers, who rely heavily on social media – a tool that was not available to Chanos during his first two decades in the industry – to convey their warnings spread overvalued or fraudulent investments.
Despite some high-profile losing bets such as Tesla and some big tech companies, Chanos never lost his skeptical stance, telling the FT in 2020 that “we are in the golden age of fraud.” A week earlier, his funds had raised $100 million by short-selling German payments company Wirecard, which filed for bankruptcy after admitting that most of its cash didn’t exist. Wirecard’s collapse followed a five-year financial accounting investigation by the Financial Times.
Chanos founded his original fund, Kynikos Associates, in 1985, using a Greek word associated with cynicism.
His most famous bet, Enron, came after he was disturbed by revelations suggesting off-balance sheet financing. A surprise loss reported by the Wall Street darling in late 2001 sparked a regulatory investigation and ultimately collapsed due to fraud that led to the imprisonment of several executives.
In the run-up to the 2008 financial crisis, Chanos had also warned about the risks of a credit crisis.
Last year he made cuts to data centers despite their popularity among investors, including big-name private equity groups, who are betting on rising demand for server space due to soaring online activity.
Chanos told the FT that he was cutting out older data centers because their biggest customers, Microsoft, Amazon and Google, were likely to build their own data centers in the future, reducing demand for existing sites.