Philadelphia Board of Pensions and Retirement voted to pull its money from Jim Chanos' Kynikos Associates after losses in April that prompted the board's finance director to ask “what went wrong.”
The board voted unanimously to pull the $4.5 billion pension fund's $25 million investment in the Kynikos Opportunity Fund after the fund lost about 4.7% in April, according to the minutes of a pension fund board meeting. Kynikos lost money betting on declines in China and shorting companies it viewed as having accounting problems or financial distress, the minutes showed.
Mr. Chanos, who predicted the collapse of Enron Corp. in 2001, declined to comment. Brad Woolworth, the pension fund's chief investment officer, didn't respond to a request for comment.
Rob Dubow, the pension fund's finance director, previously has questioned giving money to Mr. Chanos as the bull market in stocks punished managers like Kynikos that bet against companies. The pension fund has lost 6.4% per year on its investment in the Kynikos fund from inception in May 2012 through February.
In January 2014, the Philadelphia board stuck with Mr. Chanos because he'd helped the pension fund with its broader allocations, including limiting investments in international and emerging markets equities. Sumit Handa, chief investment officer at the time, also argued that three short bets by Mr. Chanos were against companies that potentially committed accounting fraud and therefore probably would pay off. Mr. Handa left in January for Bank of New York Mellon.
After the latest loss, Mr. Dubow asked Mr. Woolworth, “What went wrong?” Mr. Dubow also asked if it was a one-time occurrence that Kynikos can overcome.
Mr. Woolworth responded that if this had been the first time, he would have given Mr. Chanos a chance. But Mr. Woolworth said, the staff had spent a long time discussing this manager.
While Philadelphia's investment in Kynikos significantly underperformed against the Standard & Poor's 500 index, which returned an annualized 19% during the comparable period, Mr. Chanos outperformed other managers that bet mostly against stocks. The HFRX Equity Hedge Short Bias index fell an average of 10.9% per year over the period, according to data compiled by Bloomberg.
