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

As part of the deal, they acquired non-controlling interests in Melvin for three years. So far, Citadel, its partners and Point72 have lost money on the deal, although the exact extent of the loss on Sunday was unclear.

Melvin withdrew his portfolio on a large scale, a client said. People familiar with the hedge fund said that the leverage ratio – the value of its assets compared to the capital of investors – was the lowest since Melvin’s inception in 2014. They also said that the company’s position-level liquidity, or its ability to easily exit bonds in its portfolio has increased significantly.

According to the celebrities, new and existing clients signed up to invest money in Melvin on February 1st. It was unclear how much they would add.

Melvin has established himself in recent years as one of the best hedge funds on Wall Street, but a short position in GameStop Corp.

GME 67.87%

has hurt the firm in recent weeks. Losses extend beyond GameStop, with declines across the portfolio during a period of turmoil in the market. Positions in which Melvin advertised the holding of put options – clumsy contracts that usually make a profit as shares fall – soared in his last quarterly regulation, while positions in companies he held sold.

Bed bath and beyond Inc.,

The Chinese teaching company GSX Techedu listed in New York Inc.

and National liquor Corp.

rose 78.4%, 62% and 99% respectively at their intra-week highs last week. Meanwhile, Booking Holdings Inc.

and Expedia Group Inc.

with 9.9% and 13.4% lower at their lows within the week.

Traders say while GameStop continued to rise – from $ 30 to $ 75 and above – there was a contagion effect. Managers have lost confidence short positions would stop rising in value and cover heavily abbreviated names, worrying that social media investors would turn their attention to companies they were short on. They have also started reducing their investments in companies to reduce the risk in their portfolios, which is detrimental to other investors in the companies. Just last week, GameStop shares soared more than four times.

“The performance pain … was record breaking,” Morgan Stanley told his trading clients last week.

Last week, hedge funds set daily records of various kinds for how much they withdrew their exposure to the U.S. stock market by covering their shorts and selling out their commitments to companies, according to clients of Morgan Stanley and Goldman Sachs. Group Inc.

On Wednesday, this kind of so-called unlocking contributed to the biggest drop in one-day use of leverage funds, a Goldman note said.

Maplelane Capital, another hedge fund that suffered significant losses this month, ended January with a loss of about 45%, a person familiar with the fund said. It raised about $ 3.5 billion at the beginning of the year.

The crazy trade that has dropped GameStop, AMC Entertainment Holdings Inc.

a BlackBerry Ltd.

in the ranks of the most traded stocks in the US market and attracted the attention of the White House and regulators also hit prominent hedge funds Point72 and D1 Capital Partners.

D1, which ended the month with about 20%, was short AMC and GameStop, say people familiar with the fund. One of the people said D1 left both positions by Wednesday morning, but that they were small drivers of losses. A more important factor was the decline in shares in travel-related companies.

Some fund managers believe the episode is likely to change the way the industry works.

Fewer hedge funds are likely to highlight their bearish positions by announcing put options, they said. Instead, funds can use Securities and Exchange Commission rules to keep those positions confidential, which an investor in instruments used by activists has long been quietly building in companies. More funds may also introduce rules on avoiding thinly traded, heavily shortened stocks.

Write to Juliet Chung by [email protected]