WallStreetBets Chalks Head Of The Hedge Fund That Dared To Short GameStop

hedge fund that bet against gamestop shutting its doors
Earlier this year, amateur investors over at the WallStreetBets subreddit drove GameStop stock to the moon, peaking around $350 in January this year from the prior $20. This led investment firms who bet against GameStop to lose quite a bit of money which subsequently had its own rippling effects. Now, one of these hedge funds that took a hit during the meme stock rally is shutting its doors.

According to sources familiar with the situation who spoke to the Financial Times, White Square Capital, explained to its investors that it would be closing its main fund and returning capital this month after a business model review. This comes after the company, run by former Paulson & Co trader Florian Kronawitter, had peaked at $440 million in assets but suffered “double-digit per cent losses in January,” due to the GameStop rally.

However, a person close to the fund said that the decision to shutter was not related to the GameStop rally, but it is hard to see how it did not affect it. Kronnawitter explained that “The decision to close down is related to thinking the equity long-short model is challenged,” and that “there are way too many fish in the pond with the same strategy of long-short.” Thus, the business and profits are being eroded away as time goes on, coming down to a simple equation of supply and demand, it seems.

Furthermore, it does not help White Square that “two large investors had opted to withdraw their cash and put it in cheap passive funds or private equity.” This is part of a shift in a trend away from hedge funds to something that is cheaper and more likely safer. Whatever the root cause is, this is one of the first closures of a hedge fund that was hit by the meme stock wars earlier this year.

While there is the potential for other funds to shutter as well, it is not as likely because many such as Melvin Capital have somewhat rebounded. However, the meme stock rally could have shaken investors enough to be more careful with their own investments. In any case, let us know what you think of this and if other funds will follow White Squares footsteps in the comments below.