Short seller Jim Chanos has told investors that he will close his main hedge funds and return his external capital to his backers.
Chanos, 66, last year took out large short positions against data center real estate investment trusts (REIT) including Digital Realty, with a prediction that cloud providers would take their business.
He rose to prominence for successfully shorting Enron, and profited off of the fall of Luckin Coffee, Wirecard AG, and The Hertz Corporation. But he lost money betting on the collapse of the Chinese real estate market and the fall of Tesla.
Chanos again took out a short against Tesla in January, as shares in the company fell amid growing EV competition. But the company slashed prices and has seen its shares jump 90 percent this year.
The S&P 500 is up nearly 18 percent amid a wider market rally.
Last June, Chanos called data center REITs his firm's "big short right now."
“The story is that although the cloud is growing, the cloud is their enemy, not their business," he told the FT. "Value is accruing to the cloud companies, not the bricks-and-mortar legacy data centers.”
He continued: “The real problem for data center REITs is technical obsolescence. Their three biggest customers are becoming their biggest competitors. And when your biggest competitors are three of the most vicious competitors in the world then you have a problem.”
Shares in data center REITs fell following his comments, and were impacted by high interest rates. But the AI explosion helped lead to record data center growth, boosting data center stocks across the industry.
Digital Realty shares fell 37 percent from June until the end of 2022, but have since risen 32 percent year-to-date, bringing shares nearly back to the same level as when the short began.
It is not known when Chanos exited his data center shorts.
“It is no secret that the long/short equity business model has come under pressure and interest in fundamental stock pickers has waned," Chanos told investors in a letter seen by the Financial Times.
“While I am as passionate as ever about research and investing, I feel compelled to pursue these passions in a different construct.”
He said that his short holdings had generated annualized alpha (an outperformance relative to broad market indices) of about eight percent since the 2018 market bottom and more than 20 percent over the past three years.
“These results, despite zero-interest rate policy, meme stock mania, and more, remain ahead of virtually all hedge fund industry return indices."
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