When hedge fund guru speaks, the world listens
The market veteran first came to prominence in Australia by raising doubts over the Macquarie model - precisely as the investment bank's share price was marching steadily towards $100.
At the time, Chanos told a gathering of New York hedge funds that his Kynikos Associates had sold off its Macquarie holdings, declaring the investment bank had "an inherently unstable platform" and saying it "doesn't care what it pays" for the infrastructure assets it acquired on behalf of its unlisted and listed funds. His sharpest criticism was apparently saved for Macquarie's accounting approach to buying and selling assets, flicking them into off balance sheet funds, something he regarded as unsustainable.
Chanos' remarks had some gravitas given he was one of the first Enron sceptics, querying the sustainability of the energy giant even though it had been delivering high rates of earnings growth.
But Chanos was 14 months too early in his attack on Macquarie and the investment bank's shares continued to rise.
The onset of the global financial crisis triggered an eventual crash in Macquarie's shares to a low of $15.75 and forced it to exit many unlisted funds.
Chanos is known for his attention to accounting principles in picking holes in business models.
More recently he has staked a claim as a China bear, warning of a property market slump there.
This outlook on China stoked his views on Fortescue, and last year he singled out the iron ore miner as a global example of a "value trap" in the "iron ore rush".
Elsewhere, Chanos says he's shorting heavy equipment maker Caterpillar over concerns about the extent of the recovery in the US construction market.
Frequently Asked Questions about this Article…
Jim Chanos is a high-profile short seller who oversees about US$6 billion at Kynikos Associates. He first gained attention in Australia for calling out issues at Macquarie and was one of the early sceptics of Enron. Investors follow him because he focuses closely on accounting practices and business-model flaws when judging companies.
Chanos told investors he had sold Macquarie holdings, calling the bank an “inherently unstable platform.” He criticised its approach to buying and selling assets, including shifting assets into off‑balance-sheet funds and what he described as a willingness to pay whatever was required for infrastructure assets held in listed and unlisted funds.
Chanos’s concerns were later borne out during the global financial crisis: although his attack was about 14 months early and Macquarie shares continued to rise initially, the stock eventually crashed to a low of $15.75 and the bank was forced to exit many unlisted funds.
Being one of the first sceptics of Enron gave Chanos credibility. The fact that he questioned Enron’s sustainability despite strong earnings growth added gravitas to his later critiques of other companies and business models.
Chanos is known for his attention to accounting principles as a way to identify weaknesses in business models. He looks for questionable accounting treatments—such as off‑balance‑sheet structuring—that can mask underlying risks and create opportunities for short sellers.
Chanos has positioned himself as a China bear, warning of a potential property-market slump. That outlook fuelled his view that miners such as Fortescue could be “value traps” amid what he called an ‘iron ore rush,’ suggesting that China weakness could hurt demand and valuations.
Yes — Chanos says he is shorting heavy‑equipment maker Caterpillar. His concern is that the recovery in the US construction market may not be as strong or durable as the market expects, which would weigh on companies exposed to construction equipment demand.
From the article, everyday investors can learn three clear points: pay attention to a company’s accounting and off‑balance‑sheet structures, be aware that correct calls can still be mistimed (Chanos was about 14 months early on Macquarie), and factor in macro risks—like China’s property market—that can affect commodity and equipment sectors such as miners and manufacturers.
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