Two Sigma Investments and DE Shaw, two of the biggest names in the hedge fund industry, recorded losses after an army of retail investors on Reddit toppled the markets.
The coordinated short-term tightening that triggered the price of GameStop and other low-priced stocks in late January has shaken many hedge funds by setting up some of their carefully placed bets. Melvin Capital, which lost 53% in January, is the highest profile victim, but many other funds have suffered losses, mainly in bets against stocks they expected to suffer during the pandemic.
New York-based Two Sigma, which manages about $ 48 billion in assets and was created in 2001 by computer scientist David Siegel and mathematician John Overdeck, lost 5.3% in its Absolute Return fund and 8, 6% in its Absolute Return Enhanced fund, say people who have seen the numbers.
Two Sigma declined to comment. Its Compass macro fund and risk premium funds were virtually stable last month, one person said.
DE Shaw, of David Shaw, who manages about $ 27 billion, gained 0.9% in his main Compound fund, but lost 2.3% in his global macro fund Oculus, according to people familiar with his performance. The company declined to comment.
The losses mark a reversal to DE Shaw after a strong year of returns in 2020. However, like many other quant funds, Two Sigma struggled in some of its funds during the pandemic.
While many hedge funds, especially those managed by human traders, made big gains in the past year, many computer-driven funds have been caught by the sudden fluctuations in the markets.
This year, some fund models that seek to exploit small pricing errors in hundreds of stocks have been hit hard, as retail investors’ interest has pushed some stocks far above previous valuations. GameStop, the focus of Redditors’ attention, rose 1,625 percent last month, while BlackBerry rose 112 percent.
Among other funds that will suffer this year is Jim Simons’ Renaissance Technologies, which recorded double-digit losses last year. It lost 9.5% this year through the end of January in its institutional stock fund, according to figures sent to investors and seen by the Financial Times.
Overall, hedge funds gained 0.9 percent last month, according to the data group Hedge Fund Research, although those focused on technology, or trying to balance the bullish bets against the bullish bets, have lost money.
(An earlier version of this story incorrectly said that the DE Shaw compound fund had lost money.)