Reddit Traders Celebrate As Hedge Fund That Shorted GameStop Forced To Shut Down
A hedge fund that shorted GameStop stock has been forced to shut down, sparking applause from trading Redditors.
In one of 2021’s most surreal chapters, Reddit’s army of dedicated traders played the market as payback for those who’d bet against the retailer. The result was cataclysmic, with GME’s price still sitting at a cool $220. For reference though, it previously saw rises of 9,000% at its most active.
While shareholders and smaller investors made serious money, hedge fund managers and other big-ticket players lost millions. In addition to the likes of Melvin Capital, Light Street Capital and Citron, one such firm is UK-based White Square, which has since shut down – however, it’s not because of the GameStop rallying, it says.
White Square has decided to close its main fund and return capital after a review of its business model, the Financial Times reports. While the fund once had $440 million in assets under management, it incurred double-digit percent losses as a result of its shorted GME positions.
A source close to White Square told the paper it had recouped ‘a fair share’ of those losses, and the decision to shut down is unrelated to this year’s earlier short squeeze, rather said to be part of a larger ‘shift in trend away from hedge fund investing to cheaper alternative,’ the fund’s chief investment officer Florian Kronawitter told investors in a letter.
‘The decision to close down is related to thinking the equity long-short model is challenged. There are way too many fish in the pond with the same strategy of long-short. The traditional edge is being arbed away [eroded by other investors], there’s an oversupply of capital,’ he wrote.
The news has nonetheless been met with cheering on Reddit. ‘One falls, the next will fall, and the next one and so on until the big one falls,’ one wrote. ‘Like dominos they will fall. It costs them a fortune just to hold their short positions. It costs us NOTHING to hold our position. Hold and we win,’ another commented.
However, one user erred on the side of caution. ‘Yes, we all love HFs suffering and being liquidated. However we should not overhype the news around White Square Capital. They close a fund that managed at its peak $440m in assets. That’s just a dozen GME shares during MOASS. In their words: they are a small fish in the pond and there is oversupply of capital,’ they wrote.
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