| James Chanos (Bloomberg) |
James Chanos’s New York–based investment firm, Kynikos Associates, is raising money for two new hedge funds, according to regulatory filings.
It is seeking investors for Kynikos Capital Partners and Kynikos Global Capital Partners, according to separate filings. So far Kynikos has not raised any money yet for the funds, according to the filings.
The fundraising could be one of Chanos’s best market- timing decisions in a while. The short specialist, who has been badly hurt by the six-year bull market, is starting to see some of his highest-profile negative bets start to pay off.
Little is known about Kynikos’s new funds. The filings indicate that the funds require a minimum investment of $1 million but do not describe the strategy for either fund. Kynikos representatives did not return numerous calls or e-mails.
Kynikos has been struggling during the huge bull market that got under way in early 2009. We earlier reported that the firm had just $2.5 billion in assets as of February 27, 2015, down from $4 billion last year and more than 60 percent lower than the $6.5 billion the firm managed just three years ago.
At the beginning of 2013, when Kynikos had $4.2 billion under management, 20 percent of its assets were invested in the Kynikos Opportunity Fund, its long-short hedge fund, while the rest were invested in two funds that only go short. The firm’s Ursus fund — Latin for “bear” — is a U.S. short fund, while Kriticos is a global short fund.
Earlier this year the Philadelphia Board of Pensions and Retirement investment committee redeemed its $25 million investment in the Kynikos Opportunity Fund. The pension fund noted that the Kynikos fund was down 4.68 percent in April after gaining 0.89 percent in January, 0.77 percent in February and 1.84 percent in March, according to minutes from its April 30 meeting. The pension fund’s minutes state that Kynikos “made a pretty significant bet shorting China,” and in general looks for “companies they believe have accounting problems or financial distress in their balance sheets.”
However, the pension’s staff noted that these companies’ stocks instead “went up in value significantly,” according to the minutes.
Bradley Woolworth, the pension fund’s chief investment officer, said he would have stuck with Kynikos if this had been the first time this had happened, according to the minutes. However, he said, “This is the third time that we’ve had that conversation” and added that his staff has spent a long time discussing the manager.
At the annual Skybridge Alternatives (SALT) Conference in Las Vegas this past May, Chanos made a case for betting against energy stocks. He said he was short Royal Dutch Shell and Chevron Corp., repeating previous assertions that big oil companies have poor fundamentals, are spending too much on dividends and stock buybacks, and are funding shareholder goodies with borrowed money.
He also said they didn’t have much in the way of reserves. Chanos criticized Shell’s plan to acquire BG Group for $70 billion, asserting that two of BG’s businesses that investors have liked in the past don’t look promising — the liquefied natural gas business and its minority stake in Brazil’s Petrobras.
The launch of the new funds comes at a time when Chanos’s bets seem to be finally going his way. Through Friday, the Shanghai Stock Exchange Composite Index had fallen 22 percent from its high on June 12. Since Chanos’s presentation at SALT, shares of Royal Dutch and Chevron are each down about 9 percent.
