Bloomberg

Hedge fund titans are losing billions to Reddit traders running amok

(Bloomberg) – For once, Main Street beats Wall Street. Within weeks, two hedge fund legends – Steve Cohen and Dan Sundheim – suffered bruises when amateur traders teamed up to take on some of the world’s most discerning investors. In Cohen’s case, he and Ken Griffin rushed to the aid of a third party, Gabe Plotkin, whose company was knocked down. Driven by the frenzied trade with GameStop Corp. and other stocks that hedge funds have wagered against have suffered losses. This has been one of the worst careers for these money managers in recent days. Cohen’s Point72 Asset Management is down 10% to 15% so far this month, while Sundheim’s D1 Capital Partners, one of the top performing funds of the past year, is down about 20%. Melvin Capital, Plotkin’s firm, had lost 30% by Friday. This is a humbling turn for the hedge fund titans, who made a comeback in 2020 by rushing into the savage markets caused by the Covid-19 pandemic. But that crisis has helped push thousands, if not millions, of retailers into the U.S. stock market, creating a new force that the professionals don’t seem to be fighting at the moment. Their attackers are a collection of traders who use Reddit’s Wallstreetbets thread to coordinate their attacks, focusing on stocks known to be held by hedge funds. Best known is GameStop, the beleaguered brick and mortar retailer, which grew more than 1,700% this month. Other destinations include AMC Entertainment Holdings Inc. and Bed Bath & Beyond Inc. The pain is likely to spread across the hedge fund industry. with rumors among traders of heavy losses at several companies. The Goldman Sachs Hedge Industry VIP ETF, which tracks the most popular stocks of hedge funds, fell 4.3% on Wednesday on its worst day since September. The fund managers covered their money-losing short sales and scaled back bullish bets for a fourth straight session on Tuesday. During this period, their total outflows from the market reached their highest level since October 2014, according to data compiled by Goldman’s prime brokerage unit show.D1, which was founded in 2018 and had approximately $ 20 billion in net worth at the beginning of the year -Dollar had been affected by the attacks to some extent, as private companies account for around a third of their holdings and the company has reduced its exposure, according to people familiar with the matter. The fund is closed to new investment and has no plans to raise additional capital, said one respondent, asking not to be named as such decisions are confidential. The loss of D1 described by people who have been briefed on the situation contrasts with 60% Sundheim, 43, won during last year’s pandemic. Melvin received an outrageous cash injection from his peers on Monday, receiving $ 2 billion from Griffin, his partners and the hedge funds he runs at Citadel, and $ 750 million from his former boss, Cohen. “The social media posts about the bankruptcy of Melvin Capital are categorically wrong,” said a representative. “Melvin Capital is focused on providing high quality, risk-adjusted returns for our investors and we are grateful for their support.” By this year, 42-year-old Plotkin had one of the best track records among hedge fund stock pickers . He had worked for Cohen for eight years and was one of its biggest breadwinners before leaving to start Melvin. According to one investor, it has had an annualized return of 30% since it opened, up more than 50% over the past year. Another fund, the $ 3.5 billion Maplelane capital, lost about 33% this month through Tuesday, in part due to a short position in, according to investors, GameStop declined. The representatives from Point72, D1 and Maplelane declined to comment. Struggles at some of the largest hedge funds may have contributed to the S&P 500 falling 2.6% on Wednesday, 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 shorts. Cohen, 64, is perhaps the most famous victim of this year’s turmoil. The new owner of the New York Mets, whose fund grew 16% in 2020, became a national figure after beating competition from Jennifer Lopez and Alex Rodriguez for the ball club purchase. Late Tuesday, Cohen broke his usual habit of just tweeting about the Mets. “Hey stick jockeys bring it further,” he wrote on the social media platform. More articles like this can be found at bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP