Of all the confusing things that have occurred over the past six months, few can compete with a short squeeze from gamestop shares at the end of January. For two weeks, the stock price of video game retailers grew more than 1,500%, placing a short seller in a big bond. The price finally fell, but the fall continued, because the Financial Times reported that a London-based hedging fund closed the store after suffering losses during the stock rally earlier this year so it seemed unable to recover.
The source with the knowledge of the situation told FT that the white-rectang capital told investors that it would close its main fund in June and return capital after reviewing its business model. The source said the funds managed assets of $ 440 million at its peak, but bet against Gamestop, finally suffered a two-digit loss during the explosion of Meme shares at the beginning of the year.
For the FT record, this is one of the closures of the first hedging funds reportedly traced back to a surge in Meme shares which also saw the price of AMC Entertainment, Blackberry, and others increased exponentially overnight. In addition to white boxes, funds such as Melvin capital and light road capital in the US reported a big loss, but managed to survive.
“The decision to close is related to thinking that the short model of equity is challenged,” said the Head of Investment in the Florian Kronawitter Putih Capital Office. “There are too many fish in the pool with the same short strategy. The traditional edge is being pierced [eroded by other investors], there is an oversupply of the capital.”
While the sources claim that the gamestop is the main perpetrator behind the death of White Square, someone close to the funds told FT that the decision was not related. The person added that the funds made a “fair share” of his losses from January, but the funds were definitively closed, so it was clear something happened.
In the investor letter announced the closure, White Square Capital said that despite strong performance in 2020, two large investors had decided to withdraw their money from passive funds or private equity.
Meanwhile, the gamestop, which was valued at around $ 18 in early 2020, still sitting at $ 211.50 at the time of writing. Rally may end, but stock is still considered too high in an outrageous title.