A GameStop Corp. store in Rome, Italy, on Thursday, January 28, 2021.
Alesia Pierdomenico | Bloomberg | Getty Images
Melvin Capital Management hedge fund lost 53% in January amid a record rally on GameStop and other stocks the fund was betting on, according to the Wall Street Journal citing people familiar with the matter.
Strong losses occur as retail investors accumulate in popular short hedge fund targets, including the distressed video game retailer. Shares of GameStop ended last week with a 400% gain, bringing its total return this year to 1,625%. Shares closed Friday’s session at $ 325. As recently as October, it was trading at less than $ 10.
CNBC’s Andrew Ross Sorkin reported last week that Melvin Capital closed its short position at GameStop on Tuesday afternoon after suffering heavy losses. Citadel and Point72 donated nearly $ 3 billion to the fund to bolster their finances.
Melvin’s managed assets now stand at more than $ 8 billion, including emergency funding, below the approximately $ 12.5 billion at the beginning of the year, according to the newspaper.
Last week’s activity at GameStop extended to other popular short targets, including Bed Bath & Beyond and AMC Entertainment, with retail investors turning to Reddit’s WallStreetBets forum to discuss various trades. The forum has seen its membership triple in just one week, to 6.5 million.
Amid the small squeeze, Robinhood and other brokers have restricted trading on some of the most volatile names, causing frustration for users who were unable to trade at will.
Robinhood said in a blog post that the Wall Street clearinghouse demanded a ten-fold increase in the firm’s deposit requirements per week in order to ensure a good settlement in operations involving unprecedented volatility.
The meteoric rise in GameStop shares has caused some lawmakers to call on regulatory bodies to intervene.
“We need an SEC that has clear rules on market manipulation and that has the backbone to get in and enforce those rules,” Senator Elizabeth Warren of D-Mass told CNBC on Wednesday. “To have a healthy stock market, you have to have a policeman at your pace.”
Read more in The Wall Street Journal report.