Short Seller Jim Chanos Shuts Hedge Funds After 38-Year Run

Jim Chanos, the legendary short seller known for his bearish bets against Enron and Tesla Inc., is shuttering his hedge funds after almost four decades.

Author of the article:

Bloomberg News

Hema Parmar

Published Nov 17, 2023 • 2 minute read

Jim Chanos, founder and president of Chanos & Company LP, during a Bloomberg Television interview in New York, US, on Thursday, Sept. 14, 2023. Chanos said that Chinese President Xi Jinping has put ideology over the nation’s economy, raising the risk to the rest of the world. Photographer: Victor J. Blue/Bloomberg Photo by Victor J. Blue /Bloomberg

(Bloomberg) — Jim Chanos, the legendary short seller known for his bearish bets against Enron and Tesla Inc., is shuttering his hedge funds after almost four decades.

Chanos & Co., which he founded as Kynikos Associates in 1985, plans to return most capital to investors by the end of the year, according to a letter to clients Friday.

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“It is no secret that the long/short equity business model has come under pressure and interest in fundamental stock pickers has waned,” Chanos wrote. “While I am as passionate as ever about research and investing, I feel compelled to pursue these passions in a different construct.”

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His hedge funds have dropped about 4% so far this year, and the firm’s assets have shrunk to less than $200 million from about $8 billion in 2008. Chanos, 65, will continue to run his firm, mostly investing his personal capital but also managing money for certain clients in separately managed accounts.

His firm will continue to offer investors “bespoke advice on fundamental short ideas and portfolios as well as the occasional profitable macro insight,” Chanos wrote. As it winds down, clients will get roughly 90% of their cash back by year-end, and the rest in the first half of next year.

Chanos, a frequent presence on television and X, the social media platform previously known as Twitter, said he’s shuttering the funds after returning almost $5 billion of profits to investors since the firm’s inception.

The Wall Street Journal reported on his decision earlier.

Chanos started an analyst in the early 1980s, publishing sell-side research when the realized he had a knack for finding troubled companies. Raised in Milwaukee, he initially planned to be a doctor before switching gears to get an economics degree from Yale University. When he started his New York-based firm, he picked the name Kynikos — the Greek word for cynic. His firm tended to look at three types of shorting themes: consumer fads, debt-fueled asset manias and companies with accounting anomalies.

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He’s most famous for being among the first investors to notice problems at Enron — a year before the energy company imploded — and helped expose a massive fraud, riding the stock’s decline from an average $79.14 a share in 2000 through December 2001, when it plummeted to 60 cents.

Tesla, IBM

More recently, Chanos maintained a bet against Elon Musk’s Tesla for more than five years — and got burned. The stock has soared more than 1,500% since 2015. Chanos had taken issue with the company’s business model and its valuation, and said in 2020 that its quarterly profits were driven more by sales of regulatory credits than cars.

That year, one of his biggest short positions was on International Business Machines Corp., saying the tech giant used “financial engineering” to mitigate its deterioration. He has also been a vocal bear on China and made $100 million by shorting German payments company Wirecard AG.

While he’s now shuttering his hedge funds, Chanos said in his letter that he believes “the Golden Age of Fraud is still in full force.”

Among the “plentiful” short opportunities he sees today: data centers and real estate investment trusts.

(Updates with fund returns in fourth paragraph, education and career background starting in eighth.)

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