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Once time, Main Street beats Wall Street.
Within weeks, two hedge fund legends – Steve Cohen and Dan Sundheim – suffered bruising losses, while amateur traders teamed up to face some of the world’s most sophisticated investors. In Cohen’s case, he and Ken Griffin rushed to the aid of a third, Gabe Plotkin, whose company was beaten.
Driven by the frantic transaction of GameStop Corp. and other stocks against which hedge funds have bet, the losses suffered in recent days would be among the worst in some of the historical careers of these money managers. Cohen’s Point72 asset management has fallen 10% to 15% so far this month, while Sundheim’s D1 Capital Partners, one of the best performing funds last year, fell by about 20%. Melvin Capital, Plotkin’s firm, lost 30 percent by Friday.
It is a humiliating return for the titans of hedge funds, which, in 2020, returned to the wild markets caused by the Covid-19 pandemic. But this crisis has helped push thousands, if not millions, of retailers into the US stock market, creating a new force that professionals now seem powerless to combat.
Their attackers are a collection of traders who use the Reddit thread wallstreetbets to coordinate their attacks, which seem to focus on actions known to be restricted by hedge funds. Most prominent is GameStop, the brick and mortar retailer that grew by more than 1,700% this month, but other targets include AMC Entertainment Holdings Inc. and Bed Bath & Beyond Inc.
Read more: GameStop Frenzy Reaches Biden and Powell as Squeezed Hedge Funds
The pain is likely to spread across the hedge fund industry, with rumors circulating among traders about large losses at several companies. The Goldman Sachs Hedge Industry VIP ETF, which tracks the most popular shares of hedge funds, fell 4.3% on Wednesday for the worst day in September.
GameStop is up more than 1,700% this month.
Photographer: David Paul Morris / Bloomberg
Fund managers covered their short sales that lost money, while lowering bullish bets for a fourth straight session on Tuesday. During this period, total market outflows reached their highest level since October 2014, according to data compiled by Goldman’s main brokerage unit.
D1, which was founded in 2018 and had assets of about $ 20 billion at the beginning of the year, is affected to some extent by attacks, as private companies account for about a third of its holdings, and the company has reduced its exposure. , according to people familiar with the problem. The fund is closed for new investments and does not intend to open for additional capital, said one of the people, asking not to be appointed, as such decisions are confidential.
The loss of D1, described by well-informed people, contrasts with a 60% gain for 43-year-old Sundheim during last year’s pandemic.
Melvin took an unheard-of cash infusion from his colleagues on Monday, receiving $ 2 billion from Griffin, his partners and the hedge funds he leads at the Citadel and $ 750 million from his former boss, Cohen.
Read more: Reddit Crowd Bludgeons Melvin Capital in warning for industry
“Posts on social media about the bankruptcy of Melvin Capital are definitely false,” said a representative. “Melvin Capital focuses on generating high quality, risk-adjusted returns for our investors and we appreciate their support.”
Photographer: Scott Eells / Bloomberg
So far this year, the 42-year-old Plotkin has had one of the best results among hedge fund sellers. He had worked for Cohen for eight years and had been one of his biggest money makers before he left to train Melvin. It recorded an annualized return of 30% since opening, closing last year with over 50%, according to an investor.
Another $ 3.5 billion Maplelane Capital fund lost about 33% this month through Tuesday, in part due to a short position on GameStop, according to investors.
Representatives for Point72, D1 and Maplelane declined to comment.
Fighting for some of the largest hedge funds could have contributed to Wednesday’s 2.6% drop in the S&P 500, the worst decline in October. One theory behind the decline is that funds sell long bets to get the money they need to cover their shorts.
Cohen, 64, is probably the most notorious victim of the disorder so far this year. The new owner of the New York Mets, whose fund gained 16% in 2020, has become a national figure after beating the competition between Jennifer Lopez and Alex Rodriguez to buy the ball club.
Late Tuesday, Cohen broke his usual habit of only posting on Twitter about the Mets. “Hey, the jockeys keep bringing them,” he wrote on the social media platform.
– With the assistance of David Gillen