One of the hedge funds closes after gamestop disaster

One of the hedge funds that lost millions in the battle against retail investors for the so-called meme share of Gamestop is finally giving up. White Square Capital plans to close its main fund this month and pay out the remaining money to investors. Fund manager Florian Kronawitter announced this to investors in a letter, according to a report in the Financial Times. The London-based fund managed approximately $ 440 million at peak times. Like other hedge funds, White Square had bet that game retailer Gamestop's stock would fall. The professional investors were certain that the company's business model, which was based primarily on stationary branches, was doomed to die. As small investors who had made an appointment via the Reddit platform and drove up the share price, the "FT" reported that White Square was making losses in the double-digit percentage range. Other funds reported even worse losses. For example, the US hedge fund Melvin Capital is said to have lost around 30 percent of its capital of originally 12.5 billion dollars in the course of the Gamestop soaring. However, the fund giant received a billion-dollar capital injection from investors shortly afterwards and is still in business today. According to the "FT", White Square would also have the prospect of fresh investor money. According to insiders, the losses from the Gamestop disaster have already been largely offset. But manager Kronawitter still sees no future for the hedge fund business model as a whole. Because it's not just the meme stocks that question their traditional strategy. "The decision to close is related to the idea that the long-short model for stocks is on the test bench," writes Kronawitter to his investors. The long-short model describes the traditional bets of hedge funds on rising or falling prices of individual stocks, for example with the help of risky but often highly profitable short sales in the past. The market is oversupplied with capital from the central banks and the hedge funds have lost their competitive advantage. Investors, including those who previously entrusted large sums of money to hedge funds, are increasingly opting for cheap passive funds such as ETFs. Compared to hedge funds with their expensive managers, these charge much lower fees, but generate a comparable and increasingly even higher return. "We have seen the trend reversal away from hedge funds towards cheaper alternatives," writes Kronawitter. The arbitrage opportunities for actively managed hedge funds have become less, both due to the flood of capital due to the loose monetary policy of the central banks, as well as the improved dissemination of financial information. According to Kronawitter, this raises the question of the extent to which the same fees can be justified.