Jim Chanos is shutting down hedge funds he managed for decades that wager against companies he believes are overpriced or fraudulent. VICTOR J. BLUE/BLOOMBERG NEWS By Gregory Zuckerman and Peter Rudegeair Nov. 17, 2023 5:30 pm ET 94 Wall Street’s best-known bear is going into hibernation. After nearly four decades, Jim Chanos is shutting down hedge funds he manages that wager against companies he believes are overpriced or fraudulent. His career as a short seller spanned acontrarian bet against Enron that paid off when the energy trader collapsedas well as yearslong, money-losing campaigns against Tesla and AOL. More recently, Chanos has struggled to turn his pessimistic positions into profits while markets generally moved higher. His firm, Chanos & Co., manages less than $200 million today, down from $6 billion in 2008, and its funds are down 4% so far this year, while the S&P 500 is up 19%, including dividends. Shares of Tesla are up about 90% this year, and the electric-vehicle maker is one of the world’s most valuable companies. “The marketplace for what I do has changed,” Chanos, 65, told The Wall Street Journal. He expects to return most of his investors’ cash by Dec. 31. Chanos will continue to operate his firm but will focus on doing advisory and research work for select clients and running certain separately managed accounts. He says he’s lately been shorting high-price data-storage companies and real-estate investment trusts, which he says will be hurt as interest rates stay elevated. Jim Chanos, with hand to chin, appeared on the ‘Titans at the Table’ television program in 2012. PHOTO: JIN LEE/BLOOMBERG NEWS He also plans to keep posting on Twitter, the social-media platform now known as X, where his account, @WallStCynic, broadcasts criticisms of what he sees as analysts’ and investors’ overexuberance to over 133,000 followers. Chanos first made a name for himself as a bearish junior analyst at Gilford Securities in 1982 when he urged clients to bet against Baldwin-United, a highflying maker of pianos that had expanded into insurance, months before it filed for bankruptcy. He assumed an unusually public role as a stock-market scold. Though other short sellers preferred to operate below the radar, Chanos seemed to enjoy the spotlight. He regularly took to television and industry conferences, including his own “Bears in Hibernation” gatherings. Targets of Chanos were so bothered that they sometimes hired private investigators to dig up dirt on him and complained to the Securities and Exchange Commission. “People think I have two horns and spread syphilis,” Chanos told the Journal for a 1985 story. Later that year, he left his job as an analyst, raised $16 million and launched a hedge-fund firm, originally named Kynikos Associates after a Greek word for “cynic.” In the 1990s, Kynikos secured an investment from the Ziff Brothers, billionaire backers of hedge-fund managers including Bill Ackman. (In 2022, the name of the firm was changed to Chanos & Co.) Chanos’s breakout moment occurred in 2001. He had set his sights on Enron, a gas-pipeline company that had morphed into a big player in energy trading and became a Wall Street darling. After studying Enron’s filings, Chanos flagged disclosures that pointed to risky related-party and off-balance-sheet transactions. He concluded that the company was a “hedge fund in disguise.” In 2001, Enron disclosed that regulators were investigating the Houston-based energy company before its collapse. PHOTO: GETTY IMAGES That autumn, Enron announced a surprise loss and a regulatory investigation. It collapsed into bankruptcy before the end of the year in one of the biggest cases ever of corporate fraud and malfeasance. Several Enron executives went to prison. Ahead of the 2008-09 financial crisis, Chanos issued warnings about a potential credit and banking crisis and his funds scored gains when the markets tumbled, though they paled compared with those of others who didn’t specialize in shorting, like John Paulson. Chanos followed that up with wagers against companies that would suffer from a slowdown in the Chinese economy. The crash that Chanos predicted took years to arrive. By 2015, bearish Chinese positions accounted for about one-fifth of the holdings in Kynikos’s global funds, and the firm produced gains when Chinese stocks sold off that summer. Some of Chanos’s targets took him to court. Casino magnate Steve Wynn brought, and later lost, a slander lawsuit against Chanos in 2014 after the short seller suggested that Wynn Resorts may have broken anticorruption laws. Insurer Fairfax Financial Holdings accused Kynikos and other hedge funds in 2006 of coordinating bets against the company; a judge dismissed the case against Kynikos.
I'm surprised with so much dispersion created by the skyrocketing rates, Chanos would have a hard time shorting. Maybe he only deals with large companies he can short and those companies don't have a cost of capital concern. Instead of trying to short Musk he should have shorted Icahn. Shorting Musk is the new widowmaker trade.
When even expert financial forensic experts throw in the towels then you know that the level of deception and lies has reached epic proportions. The economy at current can be best described as a house of cards financed purely through debt that lives on borrowed time. The American consumer is virtually insolvent yet markets are close to all time highs. The only question is how much farther the rubber band can be stressed before it breaks.
It is surprising to many he lasted as long as he did in this very dangerous game of being predominantly short as a hedge fund. I really don't like how this is written. Price is NOT the same thing as Value. Looks like Wall Street sales-pitch right there. This sounds really bad. Will those accounts be managed outside a traditional hedge-fund? Because if they are NOT under encapsulated protection, which is not clear here, then each of those members will be liable for NEGATIVE profits. This is exactly what happened to those clients who had their accounts managed by Cordier (outside of a traditional hedge fund). When those Short-Strangles got margin called, the clients didn't just lose everything. The values went much lower than Zero. So you get an email that you not only lost your millions, but owe another million in margin. Very risky business... He's already behind the 8-ball by 25% to the market. You think a money manager can easily over-come that? Do you know any friends who enjoy trying to hop into a fund that's already missed the boat by this much? Investors already try to split hairs over a few basis points these days.
Chanos has stated repeatedly in the past that the value proposition for his clients isn’t/wasn’t market-beating absolute returns, but to act as a portfolio hedge so they could “be more long”. Interesting that he started in 1982 when the modern perpetual bull market era began, and managed to hold out for 41 years. I’ll miss his commentary, even though he got many calls catastrophically wrong (esp TSLA). Now we just need the last-bear-standing John Hussman to close his fund to signal the start of a 20-year bear market…
I wondered about his pressures of Coinbase keeping him and other shorters from sleeping well at night. For those who began to short in early January this year, they already watched the price jump well over 3x that by July. And things really haven't improved much since. Yet they still have to pay to hold those positions. God help them when blue-chip crypto ETFs finally get approved in the stone-age US. It's likely not going to end well for shorts. On the other hand, if you started the trade in Nov 21, then you're still up by a significant amount.
How about all the long only funds that are no longer around. A lot more of them, but nobody pays much attention to them. No "joy" in that.