London-based hedge fund shutters doors after GameStop saga

By Samuel Indyk

Investing.com – London-based hedge fund White Square (NYSE:SQ) Capital has announced it is shutting down after suffering losses related to bets against GameStop (NYSE:GME), according to the Financial Times.

The fund, run by Florian Kronawitter, has reportedly told investors it would shut its main fund and return capital this month after a review of its business model.

White Square is said to have suffered double-digit percentage losses in January from its bet against GameStop when shares in the videogame retailer rallied from $19.00 to a high of $483.00 amid a fuel in social media activity.

Retail traders on the popular r/WallStreetBets subreddit helped push the price of GameStop and other stocks higher, deliberately going after heavily shorted stocks such as GameStop and AMC Entertainment (NYSE:AMC).

Despite the losses in January, the decision to close the fund is reportedly unrelated to the rally in so-called ‘meme stocks’ and the fund is said to have made back a fair share of the losses in recent months.

“The decision to close down is related to thinking the equity long-short model is challenged,” Kronawitter said in the letter seen by the FT. “There are way too many fish in the pond with the same strategy of long-short.”

White Square was not the only fund to suffer losses in January and rethink their strategy. Melvin Capital received a near $3bln investment from Point72 and Citadel after heavy losses related to the GameStop squeeze.

In January, Andrew Left’s Citron Research, a well-known and historically successful short-seller, said it would no longer publish ‘short reports’ and would focus on long positions only. The firm was forced to cover its short position in GameStop at a loss amid the surge in share price.

However, the short-selling industry is not dead. The likes of Scorpion Capital and Hindenburg Research have recently released short reports on well known companies.

And most recently, Boatman Capital has alleged that Anglo American 's (LON:AAL) thermal coal spin-off, Thungela Resources (LON:TGAT), is worth zero.