Melvin Capital lost 53% in January, Gametop and other bets hurt


Melvin Capital Management, a hedge fund that has recently taken the brunt of losses from soaring stock prices, lost 53% in January, according to people familiar with the firm.

Melvin was founded by Gabe Plotkin, a former star portfolio manager at hedge-fund titan Steven A. Cohen. It started the year with about $ 12.5 billion and now has raised over $ 8 billion. Current figures include $ 2.75 billion in emergency fund Citadel LLC, its partners, and Mr. Cohen’s Point 72 Asset Management injected into the hedge fund last Monday.

As part of the deal, he received non-controlling revenue shares in Melvin for three years. So far, the stronghold, its partners and Point 72 have lost money on the deal, although the exact scope of the loss was not clear on Sunday.

One client said that Melvin has largely derailed his portfolio. Those familiar with hedge funds said that its leverage ratio – the value of its assets compared to its capital from investors – is the lowest since Melvin’s 2014 debut. He also stated that the company’s position-level liquidity, or the ability to easily exit securities in its portfolio, has increased significantly.

New and existing customers have signed up to put money in Melvin on February 1, according to people familiar with the case. It was not clear how much they would be adding.

Wall Street has been in a tizzy over GameStop’s stock this week, as members of Reddit’s popular WallStreetBets forum encouraged bets on the video game retailer. The WSJ explains how options trading is boosting action and what is at stake.

Melvin had established itself as one of the top hedge funds on Wall Street in recent years, but a smaller position in Gametop Corp

GME 67.87%

The firm suffered injuries in recent weeks. Losses beyond Gametop, with the subsequent fall in its portfolio during the January market turmoil. The conditions in which Melvin publicly disclosed his proprietary options — recessionary contracts that come in profit as stocks — increased in his final quarterly regulatory filing, while positions in the companies were sold.

bed Bath and Beyond Inc.

BBBY 5.02%

New York listed Chinese tuition company GSX Techedu Inc.

Gsx 0.24%

And national drink Corp

FIZZ -3.58%

78.4%, 62% and 99% were at their intraweek highs respectively last week. Meanwhile, booking holdings Inc.

BKNG -4.41%

And Expedia Group Inc.

To leave -2.08%

Their intraweek lows were down 9.9% and 13.4%.

Traders say GameStop kept climbing from 30 to $ 75 and higher – a contagious effect. Managers lost confidence that short positions would increase in value and cover heavily shorted names, worried social media-fueled investors to focus on companies they were short on. They started cutting their bets in companies to reduce the risk in their departments, causing losses to other investors in those companies. Only last week, GameStop shares rose more than four times.

“The pain of performance… is breaking records,” Morgan Stanley wrote in a note from MS. -3.27%

For its business customers last week.

Indeed, hedge funds have recorded a variety of daily records over the past week as to how much they invested in the US stock market by covering their shorts and selling out of their bets on companies, according to customer notes from Morgan Stanley and Goldman Sash. Has taken back. group Inc.

GS -1.40%

A note by Goldman said that this kind of so-called fall on Wednesday contributed to the fund’s record one-day drop in leverage use.

Maplelane Capital, another hedge fund that sustained significant losses this month, ended January with about 45% of losses, a person familiar with the fund said. It managed approximately $ 3.5 billion at the beginning of the year.

Frantic business that destroys Gametop, AMC Entertainment Holdings Inc.

AMC 53.65%

And blackberry Ltd.

Bibi -3.75%

In the category of the most traded stocks in the US market and attracted the attention of the White House, regulators also hit key hedge funds Point 72 and D1 Capital Partners.

The D1, which ended the month at around 20%, was short AMC and GameStop, with people familiar with the fund. One of the people said that D1 had left both positions by Wednesday morning, but they were small drivers of the loss. A more important factor was the decline in shares of travel-related companies.

Some fund managers say that this episode is likely to change how the industry works.

He said that low hedge funds are likely to expose their recessionary position by disclosing put options. Instead, the fund can use the Securities and Exchange Commission rules to keep those positions confidential, a tool activist investors have long used to quietly hold positions in companies. More money can also make rules about avoiding broadly traded, heavy stocks.

write to Juliet Chung at [email protected]

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