The White Square Capital fund has closed, promising to return capital to investors by the end of June. The Financial Times reports, citing sources close to the company and a letter to investors.
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At its peak the fund managed about $440 million in assets. In January the hedge fund opened short positions in the shares of the videogame retailer GameStop, whose price had surged about 700% thanks to Reddit users. White Square Capital incurred double-digit percentage losses.
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According to an informed source, the decision to close the fund was not related to the January losses, as the firm quickly recovered and offset the losses. The main reason was a shortage of investors.
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The source said that in 2021 two major clients withdrew cash from White Square Capital and decided to put it into cheap passive funds.
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“We would personally prefer investing not in hedge funds, but in cheaper alternatives,” said one of White Square Capital’s clients.
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In May the management of White Square Capital expected inflows of new investors, but this did not materialize.
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Co-founder Florian Cronawitter said that in the current environment the long/short strategy is “quite dubious”.
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He also noted that White Square Capital’s arbitrage opportunities had “shrunk” due to “capital pressure driven by central bank currency interventions”.
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On June 22, GameStop completed an on-market stock offering (ATM) totalling almost $1.3 billion, before fees and other expenses. The funds will be used to finance further growth.
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The rally proved costly for major players with short positions, notably Melvin Capital — the hedge fund lost 53% of its capital in January.
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Against the backdrop of the rally, the crypto-friendly platform Robinhood restricted trading in several assets. This drew criticism from authorities and investors, who suspected the service of collusion with Melvin Capital and market-maker Citadel.
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In April, GameStop posted a vacancy for a security analyst who understands blockchain, cryptocurrencies and NFTs. Later the company announced the launch of its own platform for non-fungible tokens.
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