Thursday, September 28, 2023

Hedge fund Melvin suffers 53% loss after Reddit attack

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Melvin Capital, the hedge fund that was taken badly by retail traders who drove up shares of GameStop and other companies it had bet against, lost 53% in January, according to people familiar with the results of the society.

The New York-based hedge fund has suffered a $ 4.5 billion decline in assets since late last year to $ 8 billion, even after a $ 2.75 billion cash injection from the part of Point72 Asset Management by Steve Cohen and Citadel by Ken Griffin.

Melvin has become the target of retail traders who coordinated to jack up GameStop’s share price on online message boards such as Reddit, after the company revealed its bet against the company in regulatory filings.

The short squeeze on Melvin was seen by some as a victory over a broken system they see as beneficial to the country’s elite, and the trading strategies used to pressure hedge funds have moved from the fringes of the internet. at the heart of the times.

On Wednesday Melvin said he quit his bet against GameStop and repositioned his wallet. The company decided to reduce the risk of its investments after a turbulent start to January where it lost 30 percent in the first three weeks. Melvin’s debt ratio is at its lowest since the company was founded in 2014, a source close to the company said. News of Melvin’s performance in January was first reported by The Wall Street Journal.

The GameStop saga marks a disgrace for Melvin, who gained 52% last year, ranking him among the top performing hedge funds. Founder Gabe Plotkin was one of Mr. Cohen’s most prominent traders at SAC Capital, until he closed his doors amid an insider trading scandal.

A spokesperson for Melvin declined to comment on the company’s January performance.

The GameStop stock rally has captivated Wall Street and forced many hedge funds to rethink risk management practices. On Monday and Tuesday of last week, other long-short hedge funds reduced their market exposure by hedging short bets and selling stocks.

“The market action has been a wake-up call and retail traders are likely to continue to be a force to be reckoned with, which will likely permanently affect the business models of institutional investors,” said Maneesh Deshpande, strategist at Barclays.

U.S. securities regulators said last week they would examine trading for signs of manipulation, as well as restrictions put in place by brokerages like Robinhood and Charles Schwab to see if they put investors at a disadvantage.

GameStop shares have climbed more than 1,625% this year, and last week the company’s stocks and options soared in value as retail investors piled up.

As members of the popular Reddit community WallStreetBets focused their attention on GameStop, they widened their gaze to other unlucky businesses, with clothing retailer Express and movie theater owner AMC’s shares more than tripling in value on the week. last.


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