Bloomberg
Hedge fund titans lose billions to Reddit traders who dominate Amok
(Bloomberg) – For the first time, Main Street is defeating Wall Street. In a matter of weeks, two hedge fund legends – Steve Cohen and Dan Sundheim – suffered staggering losses when amateur brokers came together to take on some of the world’s most sophisticated investors. In Cohen’s case, he and Ken Griffin ended up running to the aid of a third party, Gabe Plotkin, whose company was being defeated. Driven by GameStop Corp’s frantic trading. and other actions that hedge funds bet on, the losses suffered in the past few days, ranked among the worst in the historical careers of some of these money managers. Cohen’s Point72 Asset Management has dropped 10% to 15% so far this month, while Sundheim’s D1 Capital Partners, one of last year’s best performing funds, has dropped about 20%. Melvin Capital, Plotkin’s company, lost 30% through Friday. It is a humiliating turnaround for hedge fund titans, who in 2020 staged a comeback by attacking the wild markets caused by the Covid-19 pandemic. But this crisis helped push thousands, if not millions, of retail traders into the US stock market, creating a new force that, for now, professionals seem powerless to fight. His attackers are a collection of traders who use Reddit’s wallstreetbets to coordinate their attacks, which appear to be focused on actions known to be held by hedge funds. The most prominent is GameStop, the besieged brick and mortar retailer that increased more than 1,700% this month, but other targets include AMC Entertainment Holdings Inc. and Bed Bath & Beyond Inc. Pain is likely to be spreading across the fund industry hedge funds, with rumors circulating among large-loss traders at various companies. Goldman Sachs Hedge Industry VIP ETF, which tracks hedge funds’ most popular shares, fell 4.3% on Wednesday on its worst day since September. Fund managers covered their short sales that lost money while cutting bullish bets for a fourth consecutive session on Tuesday. In that stretch, their total market exits reached the highest level since October 2014, data compiled by the main brokerage unit of the Goldman show.D1, which was founded in 2018 and had about $ 20 billion in assets earlier in the year. , is to some extent, hit by the attacks because private companies account for about a third of its stakes, and the company has reduced its exposure, according to people familiar with the matter. The fund is closed to new investments and has no plans to go public, said one of the people, asking not to be named because such decisions are confidential. The D1 loss, described by people informed about the situation, contrasts with 60% gain for Sundheim, 43, during last year’s pandemic turmoil. Melvin received an unprecedented infusion of money on Monday from his peers, receiving $ 2 billion from Griffin, his partners and the hedge funds he manages at Citadel, and $ 750 million from his former boss, Cohen. “Social media posts about Melvin Capital’s bankruptcy are categorically false,” said a representative. “Melvin Capital is focused on generating high quality risk-adjusted returns for our investors and we appreciate your support.” Until this year, Plotkin, 42, had one of the best records among hedge fund stock selectors. He worked for Cohen for eight years and was one of his biggest money earners before leaving to form Melvin. He posted an annualized return of 30% since opening, ending last year with an increase of more than 50%, according to an investor. Another fund, the $ 3.5 billion Maplelane Capital, lost about 33% this month through Tuesday in part because of a short position on GameStop, according to investors. All representatives of Point72, D1 and Maplelane declined to comment. Difficulties in some of the biggest hedge funds may have contributed to Wednesday’s 2.6% drop in the S&P 500, its worst drop since October. One theory behind the decline is that funds are selling long bets to get the money they need to cover their short sales. Cohen, 64, is perhaps the best-known victim of this year’s turmoil so far. The new owner of the New York Mets, whose fund gained 16% in 2020, became a national figure after winning the competition from Jennifer Lopez and Alex Rodriguez to buy the football club. On Tuesday, Cohen broke his usual habit of just tweeting about the Mets. “Hey, stock market jockeys, keep bringing it,” he wrote on the social media platform. For more articles like this, visit us at bloomberg.comSubscribe now to stay on top of the most trusted business news source. © 2021 Bloomberg LP