Short seller Jim Chanos closes hedge fund after 38 years in business

(Bloomberg) — Legendary short seller Jim Chanos, known for his bets on Enron and Tesla Inc., has closed his hedge fund after nearly four decades.

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Chanos & Co., which he founded in 1985 as Kynikos Associates, plans to return most of its capital to investors by the end of the year, according to a letter to clients Friday.

“It’s no secret that the long/short business model is under pressure and that interest among fundamental stock pickers has waned,” Chanos wrote. “While I remain as passionate about research and investing as ever, I feel the need to focus on a different structure.”

His hedge fund is down about 4% so far this year, and the company’s assets have shrunk from about $8 billion in 2008 to less than $200 million. Chanos, 65, will continue to run his firm, investing primarily in personal capital but also managing the funds of some of the firm’s clients in separately managed accounts.

Chanos wrote that his firm will continue to provide investors with “customized advice on fundamental short ideas and portfolios, as well as occasionally profitable macro insights.” As the deal closes, customers will get back about 90% of their cash by the end of the year, and the remainder in the first half of next year.

Chanos, who frequently appears on television and on the X (formerly Twitter) social media platform, said he would close the funds after returning nearly $5 billion in profits to investors since the company’s inception.

The Wall Street Journal earlier reported his decision.

Chanos started working as an analyst in the early 1980s, publishing sell-side research, when he realized he had a knack for finding distressed companies. He grew up in Milwaukee and initially planned to become a doctor, but instead earned an economics degree from Yale. He founded his company in New York and chose the name “Kynikos” – Greek for “cynical”. His firm tends to focus on three types of short-selling themes: consumer fads, debt-driven asset mania and companies with accounting anomalies.

He is best known for being one of the first investors to notice problems at Enron (the energy company collapsed a year earlier) and helping to uncover the massive fraud that took the stock from its peak in 2000 to The average price per share fell from $79.14 until December 2001, when the stock price plummeted to 60 cents.

Tesla, IBM

Most recently, Chanos made a bet on Elon Musk’s Tesla that burned over five years. The stock has soared more than 1,500% since 2015. Chanos has raised questions about the company’s business model and valuation, saying in 2020 that its quarterly profits were driven more by regulatory credit sales than cars.

One of his biggest short positions that year was International Business Machines Corp., saying the tech giant was using “financial engineering” to mitigate its deterioration. He is also an outspoken bearer of China and made $100 million shorting German payments company Wirecard AG

Although Chanos is now closing his hedge fund, he said in the letter that he believes “the golden age of fraud is still in full force.”

Among the “substantial” short opportunities he sees today: data centers and real estate investment trusts.

(The fourth paragraph updates fund returns, and the eighth paragraph begins with educational and professional background.)

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