Melvin Capital lost 53% in January, Hurt by GameStop and other bets

As part of the transaction, they earned uncontrolled revenue shares in Melvin for three years. So far, Citadel, its partners and Point72 have lost money in the transaction, although the exact scope of the loss was unclear on Sunday.

Melvin risked his portfolio en masse, a client said. People familiar with the hedge fund said its leverage ratio – the value of its assets compared to its capital from investors – was the lowest since Melvin started in 2014. They also said that the company’s liquidity in position or its ability to easily leave the securities in its portfolio has increased significantly.

New and existing customers signed up to invest money in Melvin on February 1, according to family members. It was not clear how much they would add.

Melvin had established himself in recent years as one of the top hedge funds on Wall Street, but a short position in GameStop Body.

GME 67.87%

has hurt the company in recent weeks. Losses extended beyond GameStop, with declines coming from the entire portfolio during a period of market turmoil in January. Positions in which Melvin publicly disclosed holding options – low contracts that typically profit as shares decline – rose in its last quarterly regulatory referrals, while positions in the companies it owned sold .

Bed Bath & Beyond Inc.,

Chinese tutoring company in New York, GSX Techedu Inc.

and national drinks Body.

they increased by 78.4%, 62% and 99% to their weekly highs last week, respectively. Meanwhile, Booking Holdings Inc.

and Expedia Group Inc.

they fell by 9.9% and 13.4% to their weekly lows.

Traders say that as GameStop continued to grow – from $ 30 to $ 75 and up – there was a contagion effect. Managers have lost confidence in short positions would stop growing in value and cover very short names, worried investors, fed by social networks, will focus on companies in which they were short. They have also begun to reduce their stake in companies to reduce the risk in their portfolios, harming other investors in these companies. Last week alone, GameStop shares rose more than fourfold.

“Performance pain … was a record,” read a note from Morgan Stanley to its trading clients last week.

Indeed, hedge funds set near-daily records of various kinds last week for how much they withdrew their exposure to the U.S. stock market, covering their shorts and selling their bets to companies, according to customer notes from Morgan Stanley and Goldman Sachs Group Inc.

On Wednesday, this type of so-called degradation contributed to the biggest one-day decline in the use of registered leverage funds, Goldman said in a statement.

Maplelane Capital, another hedge fund that suffered significant losses this month, ended January with a loss of about 45 percent, said a person familiar with the fund. He managed about $ 3.5 billion earlier this year.

The frantic transaction that catapulted GameStop, AMC Entertainment Holdings Inc.

and BlackBerry Ltd.

among the most traded stocks on the US market and captured the attention of the White House, and regulators also hit major hedge funds 72 and 72 D1 Capital Partners.

D1, which ended the month with about 20%, was short AMC and GameStop, said people familiar with the fund. One of the people said that D1 came out of both positions until Wednesday morning, but that these were small loss factors. A more significant factor was the decrease in travel-related companies’ shares.

Some fund managers say the episode may change the way the industry works.

Fewer hedge funds will highlight their declining positions by disclosing put options, they said. Instead, funds can use the rules of the Securities and Exchange Commission to maintain the confidentiality of these positions, an activist tool that investors have long used to build quiet positions. Several funds may also establish rules on the avoidance of thin, very short traded shares.

Write to Juliet Chung at [email protected]