One hedge fund that bet against GameStop is closing its doors after taking double-digit percent losses from the meme stock's rally
Hedge fundWhite Square is shutting down after a review of its investing strategy, the FT reported.
UKfund suffered a double-digit percent loss in January from betting against GameStop.
- Its decision to close down is reportedly unrelated to the
meme stock's rally.
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"The decision to close down is related to thinking the equity long-short model is challenged," Florian Kronawitter, White Square's chief investment officer, wrote in the letter."There are way too many fish in the pond with the same strategy of long-short," he said. "The traditional edge is being arbed away [eroded by other investors], there's an oversupply of capital."
Despite the UK firm making gains of 19% in 2020, two large investors chose to withdraw their capital to invest in low-cost passive funds or private equity. "We experienced first-hand the shift in trend away from hedge fund investing to cheaper alternatives," the fund said in its letter cited by the FT.White Square was expecting to receive further investor inflows last month, but decided to shut down its fund instead. "The arbitrage opportunities have diminished with both the onslaught of capital caused by central bank monetary interventions, as well as much improved dissemination of information, bringing up the question to what degree the same fees can be justified," it said.
The GameStop retail-trader frenzy, sparked by Reddit day traders banding together to drive the company's stock price higher, ended up torching a handful of other hedge funds including Andrew Left's Citron and Gabe Plotkin's Melvin Capital.
Melvin, which ended the first-quarter down 49%, closed out of its public short positions following the unprecedented trading activity that delivered a rare victory to small retail traders.Read More: An ex-Goldman trader lays out the 5 'sentimental tops' that he saw in bitcoin - and shares how far the cryptocurrency has to fall before he would be interested in buying the dip
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