A GameStop Corp store. in Rome, Italy, on Thursday, January 28, 2021.
Alesia Pierdomenico | Bloomberg | Getty Images
The hedge fund Melvin Capital Management lost 53% in January amid a record high at GameStop and other stocks the fund was betting on, according to The Wall Street Journal citing people familiar with the matter.
The heavy losses occur when retail investors huddle in short targets of popular hedge funds, including the struggling video game retailer. GameStop’s stock ended last week up 400%, bringing its total return this year to 1,625%. The stock ended Friday’s session at $ 325. Even in October, it was trading below $ 10.
CNBC’s Andrew Ross Sorkin reported last week that Melvin Capital closed its short position on GameStop on Tuesday afternoon after suffering heavy losses. Citadel and Point72 injected about $ 3 billion into the fund to strengthen their finances.
The assets under Melvin’s management now amount to more than $ 8 billion – including emergency financing – compared to about $ 12.5 billion at the beginning of the year, according to the Journal.
Last week’s GameStop activity 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 deals. The forum saw its members triple in just one week to 6.5 million.
Amid the small squeeze, Robinhood and other brokers restricted the trading of some of the most volatile names, creating frustration for users who were unable to trade at will.
Robinhood said in a blog post that the central clearinghouse on Wall Street determined a 10-fold increase in the company’s deposit requirements this week, in order to guarantee a smooth settlement in trades involving securities that experience unprecedented volatility.
The meteoric rise in GameStop’s actions has prompted some lawmakers to call on regulators to intervene.
“We need a SEC that has clear rules on market manipulation and then has the backbone to get in and enforce those rules,” Sen. Elizabeth Warren, D-Mass., Told CNBC on Wednesday. “To have a healthy stock market, you need to have a police officer on the streets.”
Read more in The Wall Street Journal report.