A GameStop Corp. store on Thursday, January 28, 2021 in Rome, Italy.
Alesia Pierdomenico | Bloomberg | Getty Images
Hedge fund Melvin Capital Management lost 53% in January amid a record period in GameStop and other stocks against which the fund bet, according to The Wall Street Journal, citing people familiar with the matter.
The big losses come when small investors pile up the popular short-term targets of hedge funds, such as the struggling video game retailer. Shares in GameStop ended last week with a profit of 400%, bringing its total return this year to 1,625%. The stock closed Friday’s session at $ 325. Already in October, it traded less than $ 10.
CNC’s Andrew Ross Sorkin reported last week that Melvin Capital closed its short position in GameStop on Tuesday afternoon after suffering heavy losses. Citadel and Point72 have invested nearly $ 3 billion in the fund to sharpen its finances.
Melvin’s assets under management now amount to more than $ 8 billion, including emergency financing, from about $ 12.5 billion at the beginning of the year, according to the Journal.
Last week’s activity in GameStop expanded to other popular short targets, including Bed Bath & Beyond and AMC Entertainment, with retail investors turning to Reddit’s WallStreetBets forum to discuss various deals. The forum saw its members triple to 6.5 million in just one week.
Amid the short press, Robinhood and other brokers restricted trading in some of the most volatile names, causing frustration for users who could not trade at random.
Robinhood said in a blog post that the central Wall Street clearinghouse requires a tenfold increase in the company’s deposit requirements in a week to ensure a smooth settlement in transactions in which the securities experience unprecedented volatility.
The meteoric rise in GameStop’s shares has led some lawmakers to call in regulatory bodies to intervene.
“We need an SEC that has clear rules on market manipulation and then has the backbone to implement and enforce the rules,” Senator Elizabeth Warren, D-Mass., Told CNBC on Wednesday. “To have a healthy stock market, you have to have a policeman tailored.”
Read more from The Wall Street Journal.