London-Based mostly Hedge Fund Closes After Betting Towards GameStop, Turning into One Of First Meme Inventory Casualties


Top line

A London-based hedge fund that suffered heavy losses on bets against GameStop in January has closed its doors, the Financial Times reported on Tuesday that some financial pillars are losing billions.

GameStop is a popular meme stock.

NurPhoto via Getty Images

Important facts

White Square Capital will close its main fund this month after a review raised concerns about the viability of its business model, chief Florian Kronawitter wrote to investors, the FT reported.

Kronawitter said the decision was “tied to the assumption that the stock long-short model will be challenged,” reported the FT, a strategy where traders bet that some stocks will rise over time (long ) while others fall (short).

White Square was one of several funds to see double-digit losses on the short portion of this model in January when armies of coordinated retailers targeted stocks like AMC Entertainment and GameStop that mainstream financial institutions had bet against, known as short selling.

A person related to the Fund advised the FT that the Fund had “got a fair share” of the losses and that the decision to close had nothing to do with the Meme stock rally.

That said, White Square is one of the first funds to be hit by the Meme stock rally and closed, despite a number of financial heavyweights, including Wall Street’s Melvin Capital and Light Street Capital, taking heavy losses on short positions.

White Square did not immediately respond to Forbes’ request for comment.

Crucial quote

Kronawitter explained his argument to investors: “There are far too many fish in the pond with the same strategy” to pursue a long-short model. “The traditional advantage of hedge funds has been undermined by” an oversupply of capital, “he allegedly added.

Key background

Trading platforms like Robinhood have made investments that are normally the purview of financial institutions more accessible to the general public. The strategy and attitudes of these retailers, many of whom use Reddit forums to inform their trades, are also different from more traditional institutions that struggled as thousands piled up in seemingly nonsensical stocks, sometimes in a concerted effort to break the legs of the market Evict and punish Wall Street. Meme companies included the bankrupt Blockbuster, GameStop, BlackBerry, and AMC, which shot to sky-high ratings. Waning interest caused Meme stocks to plummet weeks later, though there has been sporadic interest in Meme stocks since then, including another frenzy in June.

further reading

Hedge fund betting against GameStop will be closed (FT)

Meme stick saga officially over? GameStop Short Interest Down 70% on a $ 20 Billion Loss (Forbes)

The New Meme Stocks: Clover Health Makes Record Highs – Then Falls – As Reddit Mania Intensifies (Forbes)

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