When a hedge fund loses assets managed, the manager needs to consider closing it down. Jim Chanos used to manage assets of $6 billion in 2008. Much changed for short-sellers in the last decade. His fund had less than $200 million in assets.
Chanos rose to fame when his research indicated that Enron was a fraud. In the years that passed, funds suffered primarily because the central government embarked on a long-term quantitative easing program. This kept interest rates artificially low. It cuts the risk of speculating on long positions.
The fund manager’s biggest mistake was betting against Tesla (TSLA) in its infancy. The electric vehicle firm had plenty of debt and losses in its early years. However, it was the first to enter the EV market, giving it a significant edge. Premium automotive firms like Mercedes-Benz and BMW could not catch up. In the last few years, new EV firms like Lucid Motors (LCID), Fisker (FSR), and Rivian (RIVN) failed to take much market share.
Tesla’s competitors had a chance to take advantage of the easy money it raised to disrupt the industry. Readers may infer that Chanos’s bet against Tesla was the last big trade that investors could not support.
Now that credit conditions are tight, short-sellers could thrive once again. The market will have new, younger players who could become the next Chanos.
