Melvin Capital Management, one of the hedge funds plundered on social media forums for its short selling bets that GameStop’s stock would fall, lost 53 percent in its portfolio in January, said a person familiar with the matter.
The main reason was the huge losses the company suffered when small investors increased GameStop’s shares. The Wall Street Journal reported for the first time the amount of Melvin Capital’s loss.
Founded by Gabe Plotkin, protected from hedge fund billionaire and owner of New York Mets Steven A. Cohen, Melvin Capital had $ 8 billion in assets under management at the end of January. That includes $ 2.75 billion that Cohen’s fund, Point72, and Citadel, another hedge fund, placed in Melvin Capital, as well as new capital from new investors, the person said.
Citadel hedge fund returns fell 3% in the month, about a third of which was caused by a $ 2 billion investment made in Melvin about a week ago, according to two people informed about Citadel’s results .
Melvin Capital pulled out of its position at GameStop after having to raise additional funds, Mr. Plotkin confirmed to CNBC last week. The company was the main player in the market drama triggered by a group of day traders who are bidding on a handful of shares that Wall Street has given up – forcing losses on large hedge funds.
Most traders seem to be small investors focused on a handful of stocks like GameStop and AMC Entertainment. But they emerged as a new risk factor for large companies that had bet against those companies with what is known as short selling. Although financial losses on Wall Street have so far seemed to be limited to several companies, volatility has shaken the broader market. The S&P 500 fell 1.9 percent on Friday, ending its worst week in three months.