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

As part of the deal, they obtained revenue shares that they did not control Melvin for three years. So far, Citadel, its partners and Point72 have lost money with the deal, although the exact extent of the loss was unclear on Sunday.

Melvin has massively risked his wallet, a client said. People familiar with the hedge fund said its leverage ratio (the value of its assets compared to investor capital) was the lowest since Melvin started in 2014. They also said that liquidity at the position level of the firm, or its ability to easily exit stocks from its portfolio, had increased significantly.

According to family members, new and existing customers have signed up to invest money in Melvin on February 1st. It was not clear how much they would add.

Melvin had established itself in recent years as one of Wall Street’s largest hedge funds, but a short position in GameStop Corp.

GME 67.87%

it hurt the firm in recent weeks. Losses extended beyond GameStop, with falls from its entire portfolio during a period of market turmoil in January. Positions in which Melvin had publicly disclosed ownership of put options (bearish contracts that usually make profits as shares decline) skyrocketed in his last quarterly filing of regulations, while positions in companies he held they sold.

Bed Bath & Beyond Inc.,

Chinese tutoring company listed on New York GSX Techedu Inc.

and National Beverage Corp.

they increased 78.4%, 62% and 99% in their week-to-week highs last week, respectively. Meanwhile, Booking Holdings Inc.

and Expedia Group Inc.

they fell 9.9% and 13.4% in their week-to-week lows.

According to retailers, as GameStop continued to rise (from $ 30 to $ 75 and up), there was a contagion effect. Managers lost confidence that short positions would cease to increase in value and cover very small names, investors worried about social media would focus on companies in which they were short. They also began to reduce their holdings in companies to reduce the risk of their portfolios, to the detriment of other investors in these companies. Just last week, GameStop shares skyrocketed more than four times.

“The performance penalty … has been a record,” Morgan Stanley read a note to his business clients last week.

In fact, hedge funds set near-daily records of various kinds last week as they withdrew their exposure to the U.S. stock market by covering their shorts and selling their bets to companies, according to notes from Morgan customers. Stanley and Goldman Sachs Group Inc.

On Wednesday, such so-called desgrossing contributed to the biggest drop in a day in the use of registered leverage, Goldman said in a statement.

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

The frantic trade that catapulted GameStop, AMC Entertainment Holdings Inc.

and BlackBerry Ltd.

in the ranks of the most quoted stocks in the US market and caught the attention of the White House and regulators also achieved significant hedge funds Point72 and D1 Capital Partners.

D1, which finished the month at around 20%, was short on AMC and GameStop, said people who were familiar with the fund. One of the people said that D1 had abandoned both positions on Wednesday morning, but that they were small loss engines. A more significant factor was the decline in travel-related business quotas.

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

They said fewer hedge funds are likely to highlight their bearish positions by disclosing put options. Instead, funds can use the rules of the Securities and Exchange Commission to keep these positions confidential, a tool that activist investors have long used to quietly build positions. There are also more funds that can set rules to avoid short-term traded actions.

Write to Juliet Chung to [email protected]