A GameStop Corp. store in Rome, Italy on Thursday, January 28, 2021.
Alesia Pierdomenico | Bloomberg | Getty Images
Hedge fund Melvin Capital Management lost 53% in a record rally on GameStop and other stocks the fund was betting on in January, a source familiar with the matter told CNBC.
The heavy losses are due to retail investors launching popular short hedge fund targets, including the troubled video game retailer. GameStop’s shares ended up 400% last week and returned 1,625% total return this year. The stock closed the session on Friday at $ 325.
It was still trading below USD 10 in October. CNBC’s Andrew Ross Sorkin reported last week that Melvin Capital closed its short position in GameStop on Tuesday afternoon after heavy losses.
Citadel and Point72 invested nearly $ 3 billion in the fund to prop up its finances. Point72 was down 10% in January, according to a source with knowledge of fund returns. Point72 declined to comment.
Citadel’s flagship fund lost less than 1% on its investment in Melvin Capital last week, a source familiar with the matter told CNBC. Citadel’s overall performance for the month was not immediately clear.
Melvin’s assets under management now stand at more than $ 8 billion – including emergency funding – up from around $ 12.5 billion at the beginning of the year after certain current investors tied up additional capital late the month.
The fund’s liquidity is strong and the use of leverage is at its lowest level since the fund was launched in 2014, according to the source.
The Wall Street Journal first reported Melvin’s losses in January.
GameStop’s activities over the past week have expanded to other popular short destinations, including Bed Bath & Beyond and AMC Entertainment. Retail investors turned to Reddit’s WallStreetBets forum to discuss various trades. The forum more than tripled its membership in just one week, north of 7 million.
In the midst of the short squeeze, Robinhood and other brokers restricted trading in some of the most volatile names, causing frustration among users who were unable to trade at will.
Robinhood said in a blog post that Wall Street’s central clearinghouse required the company’s deposit requirements to be increased tenfold per week to help ensure smooth execution of trades in securities with unprecedented volatility.
The rapid surge in GameStop shares has led some lawmakers to ask regulators to intervene.
“We need an SEC that has clear rules on market manipulation and then has the backbone to enforce those rules,” Senator Elizabeth Warren, D-Mass., Told CNBC on Wednesday. “To have a healthy stock market, you have to have a cop on the beat.”
Subscribe to CNBC Pro to access our live pro talk “How to Navigate the Reddit Market Mania” with Fundstrat’s Tom Lee.
– CNBC’s Patti Domm contributed to the coverage.
