This hedge fund earns $ 700 million on GameStop

The GameStop boom is often touted as a triumph of amateurs over professionals. Which it was to some extent. But it was also a trade that pitted professionals against other professionals – and few made more money than the firm Senvest Management LLC, Messrs. Mashaal and Gonick.

“When it started, we thought something was going through here,” he said. Mashaal, 55, said. “But we had no idea how crazy this thing was going to get.”

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

At the time, most Wall Street analysts rated the video game retailer as ‘like’ or ‘sell’. The stock was also severely shortened. Messrs. Mashaal and Gonick will learn to know that some of the top-yield hedge funds on Wall Street, including Melvin Capital Management, were clumsy on the stock from disclosure regulations.

But as they chatted with management, spoke out with competitors and took note of the involvement of activists in the stock, including Ryan Cohen, co-founder of Chewy Inc., they finally started buying. By the end of October, Senvest owned more than 5% of the company and paid less than $ 10 per share for most of the stock.

They thought the company would get a boost if GameStop could hold out until the next generation of video game consoles appeared and raised the demand for games and accessories. And they reasoned that if Mr. Cohen could help transform GameStop from a major brick-and-mortar industry into an online gaming destination, the company could be worth much more.

Messrs. Mashaal and Gonick were previously on the wrong side of short print at Senvest. One case was with the opioid manufacturer Insys Therapeutics Inc., although they eventually made money from their short position. GameStop’s share could rise if it gets stuck in a situation where the rising price is forcing clumsy investors to start buying back shares to limit their losses, they thought.

GameStop is now Senvest’s most lucrative investment in terms of earnings dollars and its internal rate of return – a performance measure that takes into account the length of an investment. It chose the company’s flagship fund of shares to reach $ 1.6 billion at the end of 2020 to $ 2.4 billion. For the month of January, the fund returned 38.4% after fees.

The predominant story that has appeared so far in January was the fact that the natural pick order on Wall Street came to the fore, with hedge funds dealing significant losses and individual investors winning after colluding to price up ‘ to increase a handful. shares that were first left for dead. But even before the week’s weakening in the protest, the reality was more nuanced.

Mudrick Capital Management MP, a New York hedge fund of more than $ 3 billion that provided a lifeline to AMC Entertainment Holdings Inc.

in December, AMC earned nearly $ 200 million in January. The movie theater chain, which fought bankruptcy, was recently one of the favorite circles.

Mudrick’s profit comes mostly from its holdings in AMC debt, which rose last week as AMC’s share price rose. The fund also raised approximately $ 50 million for the writing and sale of call options on AMC and GameStop shares it owns.

PlusTick Management in Charlottesville, Virginia, which chooses a hedge fund for equities and bonds that manages about $ 120 million, gained 20% in January, an investor said. A portion of the profit was acquired through existing interests in companies, including BlackBerry Ltd.

and the beleagured owner of the Macerich shopping center Co.

Both companies were recently featured on the message boards.

“You always pinch yourself until the last day of the month or it’s going to last,” said partner Adrian Keevil.

Other funds began trading in the weekly call options for GameStop and in some cases benefited, traders said. Given the volume of shares and options traded in GameStop and other names, they say, individual investors managed only part of the activity.

“It’s not just small people here on the long side. There are big players playing on both sides of GameStop, ”says Thomas Peterffy, chairman of Interactive Brokers Group Inc.

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

his father’s investment business. Mr. Gonick, his former roommate, joined in 2008 as a co-investment officer.

Senvest invests in 25 to 30 companies simultaneously. The pair describe the fund as a controversial investor focusing on value investing, or as the discipline to buy cheap stocks that they say will ultimately yield better returns. They say they are actively discouraging their team from attending dinners and hanging out with others in the industry, which they say leads to group thinking and pressure positions.

According to the person familiar with the fund, the most important hedge fund up to January averaged about 18.3% per annum for investors. It is also very volatile. It lost 24.1% in 2018, but 18% the following year, according to an investor document.

Senvest’s approach does not mean that they would rather talk to others about investment ideas if it is 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’s stock closed at $ 14.83, the pair announced they would add GameStop to their long list of “Best Ideas”. The following week, they held an hour-long presentation explaining why they think the stock could be worth $ 100.

Unaware of Hedgeye’s customers, Senvest recently sent GameStop to Hedgeye and presented its thesis for the stock.

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

“I respect Senvest a lot,” he said. McGough said. “We reviewed it independently and drew a similar conclusion.” He said it was “not very common” to come up with ideas.

After the rally began in GameStop, a steady stream of developments began, as Messrs. Mashaal and Gonick began to think about saving the stock. The two men were glued to their screens to track down the action. They surfed or snowed to get off the steam.

When Citadel LLC, Citadel Partners and Point72 Asset Management invested $ 2.75 billion in Melvin Capital last Monday, which suffered heavy losses, Messrs. Mashaal and Gonick suspect Melvin came out of his GameStop position and they wondered how much momentum the shorts cover might have. left.

After the market closed on January 26, Tesla CEO Elon Musk tweeted “GameStonk !!” an outcry for users of Reddit’s WallStreetBets forum, who have put their support behind GameStop.

Senvest, which slowly sharpened its position, decided to come out completely.

“Given what’s going on, it was hard to imagine it going crazy,” he said. Mashaal said.

On Wednesday afternoon, the firm shared the news of its strong GameStop profit with their customers.

Despite the blurring of this week’s rally, Senvest said the GameStop story will change one part of the way they do business: the firm will pay close attention to whether individual investors book a share on message boards before embarking on it. or bet against it.

“I would not expect the impact to be,” he said. Gonick said.

—Geoffrey Rogow contributed to this article.

Write to Juliet Chung by [email protected]