Rooting out deception on Wall Street

Institutional Investor

Among professional investors, Jim Chanos is a legend, said Michelle Celarier. In 2001, Chanos predicted the demise of Enron, the energy giant whose top executives wound up in prison for fraud. In 2008 as the rest of the stock market collapsed, his Ursus fund, which had bet that stock prices would fall, skyrocketed. Now the hedge fund manager is locked in a battle with Tesla, arguing that investors’ mania for the electric car firm resembles “market euphoria last witnessed during the dot-com craze.” But since the financial crisis ended, Chanos’ short positions, which rise when shares fall, have been

“bleeding red ink.” So is Chanos going broke? No, he’s not. His secret is that his biggest fund, Kynikos, mostly bets that the stock market will go up. He actually has just enough short positions to protect himself in a downturn. The combination has given Chanos an annual return of 28.6 percent since 1985, a three-decade record that’s “one of the greatest ever.” Still, looking for corporate hype and deception to bet against is what interests Chanos most, absorbing his “intellectual effort.” Says one friend, “There’s more than a little of the crusader in him. He would like to clean up Wall Street.”