This hedge fund earned $ 700 million on GameStop

The rise of GameStop is often thrown as a triumph of amateurs over professionals. Which was, to some extent. But it was also a job that put professionals ahead of other professionals – and few made more money than Senvest Management LLC, the firm of Mashaal and Gonick.

“When he started his march, we thought something was going on here,” said Mashaal, 55. “But I had no idea how crazy this was going to get.”

Senvest’s interest in the video game retailer was sparked by a presentation by the new GameStop CEO at a consumer investment conference in January 2020.

At the time, most Wall Street analysts had rated the video game retailer as “owned” or “sold.” The stock was also sharply shortened. Mr Mashaal and Mr Gonick were to hear about some of Wall Street’s top-performing hedge funds, including Melvin Capital Management, had a negative impact on shares in regulatory disclosures.

But as they spoke with management, they set up competitors and noted the involvement of stock activists, including co-founder Chewy Inc. Ryan Cohen, finally began to buy. By the end of October, Senvest owned more than 5% of the company, paying less than $ 10 per share for most of the shares.

They believed that if GameStop could hold out until the next generation of video game consoles appeared and sparked demand for games and accessories, the company would receive a boost. And they argued that if Mr. Cohen could help turn GameStop from a largely brick-and-mortar operation into an online gaming destination, the company could be worth much more.

Messrs. Mashaal and Gonick had been at the wrong end of the short gatherings before Senvest. One case was with opioid manufacturer Insys Therapeutics Inc., although they eventually made money on their short position. GameStop shares could rise if caught in a situation where its rising price would force rising investors to start buying shares to reduce their losses, they said.

GameStop is now Senvest’s most profitable investment in terms of dollars earned and its internal rate of return – a value of performance that takes into account the duration of the investment. It propelled the company’s fundraising fund from $ 1.6 billion by the end of 2020 to $ 2.4 billion. For January, the fund returned 38.4% after taxes.

The dominant narrative that has come out since January so far has been the overthrow of the head of the natural collision order on Wall Street, with hedge funds dealing with considerable losses and individual investors spinning with victory after uniting to raise the price on a hand stocks once left dead. But even before the week of the rally weakened, the reality was more nuanced.

Mudrick Capital Management LP, a $ 3 billion hedge fund in New York that provided a lifeline to AMC Entertainment Holdings Inc.

in December, it earned nearly $ 200 million, mostly on AMC in January. The chain of cinemas, which had fought against bankruptcy, had recently been one of the favorites of the retail crowd.

Mudrick’s earnings come mainly from his holdings in AMC debt, which rose last week as the price of AMC shares rose. The fund also made about $ 50 million by writing and selling call options on its AMC and GameStop shares.

PlusTick Management in Charlottesville, Virginia, which manages a stock and bond hedge fund that manages about $ 120 million, gained 20 percent in January, an investor said. Some of its earnings came from existing stakes in companies, including BlackBerry Ltd.

and Macerich, the owner of a besieged mall Co.

Both companies have recently been promoted on message boards.

“You always pinch yourself until the last day of the month if you have to resist,” said partner Adrian Keevil.

Other funds traded in the weekly call options for GameStop and took advantage in some cases, traders said. Given the volume of shares and options traded on GameStop and other names, they say, individual investors have driven only part of the business.

“It’s not just small people here. There are huge players playing both sides of GameStop, ”said Thomas Peterffy, president of Interactive Brokers Group. Inc.

Senvest Management was founded in 1997 by Mr. Mashaal, with an investment from Senvest Capital, based in Montreal,

his father’s investment firm. Mr Gonick, his former roommate, joined as co-head of investment in 2008.

Senvest invests in 25 to 30 companies at once. The pair describes the fund as an opposing investor focused on valuable investments or the discipline to buy cheap shares that they believe will ultimately provide superior returns. They say they actively discourage their team from participating in which with ideas and socializing with others in the industry, which they say leads to group thinking and crowded positions.

The main hedge fund covered an average of about 18.3% a year for investors until January, according to a person familiar with the fund. It is also very volatile. It lost 24.1% in 2018, but recorded 18% the following year, according to an investor document.

The Senvest approach does not mean that I am above talking to others about investment ideas when they work to their advantage.

Brian McGough and Jeremy McLean are analysts at Hedgeye Risk Management, a company in Stamford, Conn., That sells independent research to institutional and individual investors.

On December 17, when GameStop shares closed at $ 14.83, the pair announced that they were adding GameStop to their long list of “Best Ideas.” The following week, they gave an hour-long presentation explaining why they thought the stock could be worth $ 100.

Unbeknownst to Hedgeye’s customers, Senvest recently launched GameStop at Hedgeye, presenting its stock thesis.

A person familiar with Senvest said Hedgeye made an independent call to recommend GameStop. However, in doing so, Senvest probably played a role in pushing individual investors into GameStop.

“I have a lot of respect for Senvest,” Mr McGough said. “I checked it independently and came to a similar conclusion.” He said it was “not terribly common” for ideas to be clear.

Once the GameStop rally began, a steady stream of evolution made Mashaal and Gonick begin to think about saving from stock. The two men were glued to their screens, watching the action. They sailed or snowed with snow to let go.

When Citadel LLC, Citadel Partners and Point72 Asset Management invested $ 2.75 billion in high-loss Melvin Capital last Monday, Mashaal and Gonick suspected that Melvin had stepped out of his GameStop position and wondered how much he could do. be the impulse from covering shorts. Left.

After the market closed on January 26, Tesla CEO Elon Musk wrote on Twitter “GameStonk !!” a rallying cry from Reddit’s WallStreetBets forum users who put their support behind GameStop.

Senvest, who had slowly reduced his position, decided to leave completely.

“Given what was happening, it was hard to imagine that he was going crazy,” Mr Mashaal said.

On Wednesday afternoon, the company shared with customers the news about its robust GameStop profit.

Despite the disappearance of this week’s rally, Senvest said the GameStop story will change part of the way it operates: the company will pay close attention if individual investors discuss a stock on message boards before betting on or against it. .

“I would not expect this impact to end,” Mr Gonick said.

—Geoffrey Rogow contributed to this article.

Write to Juliet Chung at [email protected]