For Third Point Manager, It's Not Easy Being Short

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Daniel Loeb, founder and CEO of Third Point.

The $12 billion hedge fund Third Point has been on a tear this year, with trades like a long Nikkei position and shares of Yahoo contributing to overall returns of 15 percent in its offshore fund through May.

One area that has been working less well: a specialized short book that relies on heavy research to take bearish positions on stocks. Amid a 10 percent Standard & Poor's rally this year, some of Third Point's short holdings have held it back, as even the most beaten-down companies have staged remarkable comebacks.

Against that backdrop, Jim Carruthers, the Third Point partner who handled the company's research-driven small-stock short positions from San Francisco, is retiring from the company this summer, according to a recent investor letter.

Carruthers, who joined Third Point in 2005, worked with an analyst, Scott Matagrano as a two-man team. Despite having "generated alpha for us throughout the years with his consistently original and outstanding research," Third Point chief Daniel Loeb wrote on June 11: Carruthers "and I have agreed that his strategy of focusing on smaller-cap companies would be more effective outside of Third Point, given our asset size."

Carruthers did not respond to requests for comment.

Third Point continues to have a "massive" short book, according to someone familiar with its strategy, and the firm often mentions short positions when listing its biggest winners and losers to investors. (For the month of April, for instance, two short holdings, identified only as "Short A" and "Short B," were listed as being among the top losers.)

But that hasn't stopped some veteran short sellers from grumbling that their work is often underappreciated before a bull market turns—a moment that, given the recent sell-off, could be nigh.

"The world is bipolar when it comes to short sellers," said Jim Chanos, founder of Kynikos Associates. "We're either evil geniuses or village idiots. And in this environment, you can guess which one investors think we are." Chanos, who maintains a blend of long and short positions at any given time, added that his headcount has been essentially flat in recent years.

(Read More: Third Point Lifts Sony Stake, Urges Spin Off)

Other hedge-fund managers agreed that in the current market environment, the compensation and trading costs associated with employing dedicated short sellers can be tough to swallow. Indeed, some of the short community's favorite names, including Tesla Motors and Green Mountain Coffee Roasters, have staged triple-digit comebacks in the past year, underscoring the idea that short specialists may not deserve their hype.

Ironically, said another hedge fund manager, therein may lie an opportunity. "All the investigative shorts that have gone to new highs…are going to close their books," or take off their short positions," the manager said.

As a result, he said, it might be time to reconsider shorting companies like Tesla and Green Mountain: "The final capitulation will be in those names."

—By CNBC's Kate Kelly. Follow her on Twitter: @KateKellyCNBC