A GameStop Corp. store from Rome, Italy, Thursday, January 28, 2021.
Alesia Pierdomenico | Bloomberg | Getty Images
The Melvin Capital Management hedge fund lost 53% in January amid a record rally in GameStop and other stocks in which the fund bet, according to The Wall Street Journal, citing people familiar with the issue.
Large losses occur as retail investors pile up on short-term targets of popular hedge funds, including the video game retailer. GameStop shares closed last week with a gain of 400%, bringing the total return this year to 1,625%. The stock closed Friday’s session at $ 325. In October, it traded below $ 10.
CNBC’s Andrew Ross Sorkin reported last week that Melvin Capital closed short on GameStop on Tuesday afternoon after suffering heavy losses. Citadel and Point72 have infused almost $ 3 billion into the fund to consolidate their finances.
Melvin’s assets now amount to more than $ 8 billion – including emergency funding – down from about $ 12.5 billion earlier this year, according to the Journal.
Last week’s GameStop activity expanded to other popular short targets, including Bed Bath & Beyond and AMC Entertainment, with retail investors turning to the RedSit WallStreetBets forum to discuss various transactions. The forum saw its members triple to 6.5 million in just one week.
Against the background of shortening, Robinhood and other brokerages have restricted trading in some of the most volatile names, causing frustration for users who could not trade at will.
Robinhood said in a blog post that the central clearing center on Wall Street has imposed a tenfold increase in the company’s deposit requirements per week to ensure a smooth settlement in transactions involving securities facing a unprecedented volatility.
The meteoric rise of GameStop shares has led some lawmakers to call on regulators to intervene.
“We need an SEC that has clear rules on market manipulation and then has the backbone to go in and enforce those rules,” Senator Elizabeth Warren, D-Mass, told CNBC on Wednesday. “In order to have a healthy stock market, you have to have a policeman in rhythm.”
Read more from The Wall Street Journal report.