JIM Chanos, the legendary short seller known for his bearish bets against Enron and Tesla, is shuttering his hedge funds after almost four decades.
Chanos & Co, which he founded as Kynikos Associates in 1985, plans to return most capital to investors by the end of the year, according to a letter to clients on Friday (Nov 17).
“It is no secret that the long/short equity business model has come under pressure and interest in fundamental stock pickers has waned,” Chanos wrote. “While I am as passionate as ever about research and investing, I feel compelled to pursue these passions in a different construct.”
His hedge funds have dropped about 4 per cent so far this year, and the firm’s assets have shrunk to less than US$200 million from about US$8 billion in 2008. Chanos, 65, will continue to run his firm, mostly investing his personal capital but also managing money for certain clients in separately managed accounts.
His firm will continue to offer investors “bespoke advice on fundamental short ideas and portfolios as well as the occasional profitable macro insight”, Chanos wrote. As it winds down, clients will get roughly 90 per cent of their cash back by year-end, and the rest in the first half of next year.
Chanos, a frequent presence on television and X, the social media platform previously known as Twitter, said he is shuttering the funds after returning almost US$5 billion of profits to investors since the firm’s inception.
The Wall Street Journal reported on his decision earlier.
Chanos started as an analyst in the early 1980s, publishing sell-side research when he realised he had a knack for finding troubled companies. Raised in Milwaukee, he initially planned to be a doctor before switching gears to get an economics degree from Yale University. When he started his New York-based firm, he picked the name Kynikos – the Greek word for cynic. His firm tended to look at three types of shorting themes: consumer fads, debt-fuelled asset manias and companies with accounting anomalies.
He is most famous for being among the first investors to notice problems at Enron – a year before the energy company imploded – and helped expose a massive fraud, riding the stock’s decline from an average US$79.14 a share in 2000 through December 2001, when it plummeted to 60 US cents.
More recently, Chanos maintained a bet against Elon Musk’s Tesla for more than five years – and got burned. The stock has soared more than 1,500 per cent since 2015. Chanos had taken issue with the company’s business model and its valuation, and said in 2020 that its quarterly profits were driven more by sales of regulatory credits than cars.
That year, one of his biggest short positions was on International Business Machines, saying the tech giant used “financial engineering” to mitigate its deterioration. He has also been a vocal bear on China and made US$100 million by shorting German payments company Wirecard.
While he is now shuttering his hedge funds, Chanos said in his letter that he believes “the Golden Age of Fraud is still in full force”.
Among the “plentiful” short opportunities he sees today: data centres and real estate investment trusts. BLOOMBERG