Chanos Holds China Despite “Quicksand”

Chidem Kurdas

Jim Chanos is one of the very few managers who has succeeded over the long term with a predominantly short strategy. What’s his secret?

It looks like Mr. Chanos hedges his short bets a bit. He said at an interview at a conference last month that he remains convinced there is a property and fixed asset bubble in China and given the weakness of the banking system a soft landing is unlikely. “Chinese banks are built on quicksand,” he said.

“They should be sending a thank you note to Greece and Spain for keeping them out of the limelight.”

Nevertheless, he’s been holding the S&P China exchange-traded fund as well an iShares fund that tracks the MSCI emerging markets index. To be sure, these are small holdings in comparison to his shorts. Still, a little hedge.

But probably the more important survival tool in tough times for Mr. Chanos’ firm, Kynikos Associates, is its distinctive fee benchmark. When the stock market as a whole goes up, short selling becomes particularly dangerous. In the interview, he explained that his performance fees are benchmarked to the market.

When markets go up, he receives a performance fee even if his fund is flat. That would help keep Kynikos going in a strong market where it is almost impossible to make money from short selling.

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Tags: James Chanos, Kynikos Associates