By: Ellen Cans
In the stock market, sometimes we win and sometimes we lose. This seems to be true even for expert hedge funds in their investments and picks.
In January, hedge fund Melvin Capital lost 53 percent of its value, on a bet against Gamestop, the ailing video game retailer. Melvin ended January with just over $8 billion in assets, though it began the year with about $12.5 billion in assets, a source told the NY Post.
As reported by the Post, the hedge fund, which was founded by Gabe Plotkin in 2014, had gone all in against GameStop’s stock, which traded at under $5 five months ago. The stock, however, jumped 1,625 percent this month, to close at $325 on Friday, thanks to rookie retail investors, fueled by social media platform Reddit and online trading app Robinhood, who went on a buying frenzy for Gamestop’s stock. Melvin Capital’s loss is a reminder that on Wall Street, one man’s loss is another man’s gain.
On Sunday, Melville Capital received commitments from investors to help it out with cash in the last days of the month, as per the Post. Hedge funds Point72 Asset Management and Citadel gave Melvin Capital a $2.75 billion capital infusion, allowing the firm to close out its short position and post the hefty loss. “The fund’s portfolio liquidity is strong. Use of leverage is at the lowest level since Melvin Capital’s inception in 2014,” a source told the Post. In January, Citadel lost under 1 percent on its Melvin position in the flagship fund. In the past few days, many hedge funds have posted losses, leading to fears that some of the funds may need to shutter their doors. Several investors and fund managers say, however, that clients are learning to be patient with the losses helping them withstand January’s month’s heavy financial losses. The firms which won clients big gains in the past, and have a long and steady track record have confidence they can withstand a change in the tide.
Gamestop, a traditionally downtrodden stock, enjoyed impressive gains through the purchase of its stock by a wave of newbie investors who got their advice from chat forums like Reddit. In September, the stock was under $5 a share, but then Ryan Cohen, founder of Chewy.com, ttok on a 27 percent stake in Gamestop, saying the struggling mall retailer seemed ready for a turnabout. In January, GameStop added three new directors to its board. The stock soared with a crowd at its back, despite the fact that expert investors made the stock one of the most shorted stocks on the market.
