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For once, Main Street beat Wall Street.
Over the course of a few weeks, two legacy hedge funds – Steve Cohen and Dan Sundheim – suffered bruises as amateur traders teamed up to tackle some of the world’s most sophisticated investors. In Cohen’s case, he and Ken Griffin eventually rushed to the aid of a third, Gabe Plotkin, whose firm was knocked down.
Driven by the insane trade in GameStop Corp. and other stocks that hedge funds have been betting on, the losses suffered over the past few days will be the worst in some of these money managers’ careers. Cohen’s Point72 Asset Management has declined 10% to 15% so far this month, while Sundheim’s D1 Capital Partners, one of the best performing funds of last year, fell by about 20%. Melvin Capital, the firm Plotkin, lost by 30% until Friday.
This is a humble turnaround for the hedans fund titans, who made a comeback in 2020 by applying to the wild markets caused by the Covid-19 pandemic. But the crisis has pushed thousands if not millions of retailers into the U.S. stock market, and it has created a new force that professionals can fight powerless for the time being.
Their attackers are a collection of traders who use Reddit’s Wallstreetbets thread to coordinate their attacks, which are apparently focused on stocks that are known to be held short by hedge funds. The most important is GameStop, the beleagured retailer that has risen 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 entered as hedge funds
The pain is probably spreading across the hedge fund industry, with rumors spreading among traders about huge losses at various businesses. The Goldman Sachs Hedge Industry VIP ETF, which tracks the most popular stocks of hedge funds, tumbled 4.3% on Wednesday for its worst day since September.
GameStop has risen more than 1,700% this month.
Photographer: David Paul Morris / Bloomberg
Fund managers covered their money short-selling losses while placing a bet on Tuesday for a fourth consecutive session. Over that period, their total outflow from the market reached its highest level since October 2014, according to data compiled by Goldman’s first brokerage unit.
D1, which was founded in 2018 and had about $ 20 billion in assets at the beginning of the year, is to some extent hampered by the attacks because private companies make up about a third of its holdings and the company reduces its exposure . according to people familiar with the matter. The fund is closed for new investments and does not intend to open for additional capital, one of the people said he should not be named because such decisions are confidential.
The loss of D1, described by people informed about the situation, contrasts with a 60% gain for Sundheim (43) during last year’s turmoil.
Melvin received an unprecedented cash inflow from his peers on Monday, receiving $ 2 billion from Griffin, his partners and the hedge funds he manages at Citadel, and $ 750 million from his former boss, Cohen.
Read more: Reddit Crowd Bludgeons Melvin Capital in Warning to Industry
“The social media posts about Melvin Capital going bankrupt are categorically false,” a representative said. “Melvin Capital is committed to delivering high quality returns to our investors, and we appreciate their support.”
Photographer: Scott Eells / Bloomberg
For up to 42 years, Plotkin, 42, had one of the best records among hedge fund stock voters. He worked for Cohen for eight years and was one of his biggest moneymakers before founding Melvin. According to an investor, he has achieved an annual return of 30% since the opening, which ended last year with more than 50%.
Another fund, the $ 3.5 billion Maplelane Capital, according to investors, it lost about 33% this month until Tuesday, partly due to a short position on GameStop.
Representatives from Point72, D1 and Maplelane declined to comment.
The battle with some of the largest hedge funds may have contributed to the S&P 500’s drop by 2.6% on Wednesday, the worst decline since October. One theory behind the decline is that funds are selling long bets to get the cash they need to cover their shorts.
Cohen, 64, is perhaps by far the most notorious victim of this year’s unrest. The new owner of the New York Mets, whose fund has risen 16% in 2020, has become a national figure after beating the competition from Jennifer Lopez and Alex Rodriguez to buy the ball club.
Late Tuesday, Cohen broke his usual habit of just tweeting about the Mets. “Hey stock joggers keep it up,” he wrote on the social media platform.
– With help by David Gillen