White Square Capital, a London-based hedge fund, is closing its business in the wake of significant losses related to the GameStop meme stock bet in January.
The fund reportedly encountered double-digit losses, and the management reviewed the business model resulting in the closure, Spiegel.de reports.
At its peak, White Square allegedly controlled at least $440 million in asset management.
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Notably, people close to the matter indicate that the hedge fund had recuperated some of the losses made in January. However, they did not link the decision to close to the meme stock effect.
In a letter to investors, the fund partly attributes the closure to two high-profile investors who withdrew their cash and reinvested in other alternatives.
“The arbitrage opportunities have diminished with both the onslaught of capital caused by central bank monetary interventions, as well as much improved dissemination of information, bringing up the question to what degree the same fees can be justified,” the letter reads.
The closure is significant in the financial world, considering it is the first hedge fund to exit the market after betting on the meme stocks.
Notably, other hedge funds encountered huge losses but have shown signs of recovery. For instance, US hedge fund Melvin Capital reportedly lost more than 50% amid the January market volatility.
GameStop stock rally
Meme stocks emerged in early 2021, with retail investors using social media platforms to pump up the value of overshadowed stocks. Notably, in the case of GameStop, users on Reddit’s r/WallStreetBets deliberately went after hedge fund short sellers driving the stock prices up.
GameStop trading below the $20 mark at the start of the year but following the online activity soared to $480.
Other meme stocks that have gained attention include AMC and Clover Health Investments. The stocks have been delivering high returns but analysts warn on their long-term sustainability.
