Melvin Capital, the hedge fund that was duped by retail brokers who increased the shares of GameStop and other companies it had bet against, lost 53% in January, according to people familiar with the company’s results.
The New York-based hedge fund has dropped its assets from $ 4.5 billion since the end of last year to $ 8 billion, even after a $ 2.75 billion cash injection from Point72 Asset Management Steve Cohen and Ken Griffin’s Citadel.
Melvin became the target of retail traders who coordinated to raise the price of GameStop shares on online forums like Reddit, after the company publicized its bet against the company in regulatory documents.
The small pressure on Melvin was seen by some as a victory over a failed system that they see as benefiting the country’s elite, and the trading strategies used to pressure hedge funds have skyrocketed from the fringes of the Internet to the heart of the zeitgeist.
On Wednesday, Melvin said he gave up his bet against GameStop and repositioned his portfolio. The company moved to reduce risk on its investments after a turbulent start in January, when it lost 30% in the first three weeks. Melvin’s leverage ratio is at its lowest level since the company’s founding in 2014, said a source familiar with the company. News of Melvin’s performance in January was first reported by The Wall Street Journal.
The GameStop saga marks a fall from grace for Melvin, who gained 52% last year, ranking him among the best performing hedge funds. Founder Gabe Plotkin was one of Cohen’s most prominent traders at SAC Capital, until it closed amid an insider scandal.
A spokesman for Melvin declined to comment on the company’s performance in January.
The surge in GameStop’s shares captivated Wall Street and forced many hedge funds to rethink risk management practices. On Monday and Tuesday of last week, other long-short hedge funds cut their exposure to the market by covering short bets and selling shares.
“Market action was a wake-up call and retail traders are likely to continue to be a force to be reckoned with, which is likely to permanently affect the business models of institutional investors,” said Maneesh Deshpande, strategist at Barclays.
US securities regulators said last week that they would review the trades for signs of manipulation, as well as restrictions imposed by brokers like Robinhood and Charles Schwab to see if they would hurt investors.
GameStop’s shares have risen more than 1,625 percent this year, and last week both the company’s shares and options deviated in value as retail investors accumulated.
While members of the popular Reddit WallStreetBets community focused their attention on GameStop, they broadened their gaze to other unfortunate companies, with shares in clothing retailer Express and movie owner AMC, both more than tripling in value last week.