When gambling with shares in the video game chain GameStop, the hedge fund White Square Capital lost out to small investors. The fund is now being closed.
One of the hedge funds that burned its fingers while betting on stocks against the video game provider GameStop is closing down, according to the Financial Times (FT). London-based White Square Capital has told investors to close its main fund and repay the capital this month, the newspaper reported. The hedge fund managed $ 440 million in its prime. When gambling against GameStop, White Square Capital then made losses in the double-digit percentage range.
The closure of the fund should not be related to it, insiders told the “FT” (here you can find the original article, which is subject to a fee). Rather, the business model as a whole no longer works. There are “too many fish in the pond” quoted the newspaper hedge fund manager Florian Kronawitter. A letter to investors said the hedge fund had recovered somewhat from the GameStop losses and had even received fresh money. Nevertheless, it was decided to close. There is a trend reversal away from hedge funds towards cheaper alternatives.
White Square Capital and other hedge funds like Melvin Capital gambled away betting against GameStop. The investors had bet on falling prices at the video game retailer. They had sold the stock “empty”. That means: you borrow them from large funds, sell them, wait for the price to fall, buy them back for less and give them back to the lender; the difference between the purchase and sales price minus the rental fee is your profit.
But small investors had networked online, driven up the price of the video game retailer through purchases and thus put the professional investors, who were betting on falling prices, into a mess. The price of the GameStop share had increased tenfold within days – although the real business development of the video game retailer is dreary. The hedge funds sometimes made huge losses when betting.