‘We got lucky’: hedge funds that cashed in on the Reddit rally (Translation: We manipulated the whole thing from top to bottom.)

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‘We got lucky’: hedge funds that cashed in on the Reddit rally Surge of amateur investors’ stock bets also boosted returns of some fund managers

Stock bets on companies including BlackBerry, AMC and GameStop gave large profits to some hedge funds as retail investors piled in © FT montage; Bloomberg Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Save Laurence Fletcher in London AN HOUR AGO 0 Print this page Be the first to know about every new Coronavirus story

Retail investors who dealt a black eye to hedge funds betting against the price of stocks including GameStop last month also delivered years’ worth of gains in a matter of days to a handful of other fund managers. Investors co-ordinating their actions on Reddit drove up the price of GameStop by as much as 2,400 per cent at its peak last month, leading to huge losses for funds betting against them. Beaten-down stocks such as Bed Bath & Beyond, BlackBerry and Nokia also shot higher. The rally in a clutch of so-called meme stocks helped Union Square Park Capital Management to a 12.9 per cent gain last month, making it one of the hedge fund industry’s best performers. “We were never expecting this to happen, it was crazy,” said Leon Zaltzman, a former Lehman Brothers trader and managing partner at the New York-based fund. Zaltzman had bought into casual clothing brand Express Inc last autumn at around $1, believing retailers could be ripe for a pick-up. Express reported a quarterly loss in December, but Zaltzman believed there was “significant upside” potential after the Covid pandemic, according to an investor letter. In a best-case scenario, he had thought the stock could be worth $7 to $8 in two years’ time. Instead, Express rocketed from less than $1 at the start of the year to peak briefly at nearly $14 on January 27. Zaltzman was able to sell his shares at as much as $13.50. Express’s shares have since fallen back below $3. “We got lucky with what was happening on Reddit,” said Zaltzman, whose fund also benefited from a sharp rise in the price of shopping centre owner Macerich. Line chart of Share price ($) showing Retail investors drove GameStop price up by as much as 2,400 per cent Other funds have also reaped the benefits of these share price spikes. New York-based Senvest Management began accumulating shares in GameStop in September last year, increasing its position to more than 5 per cent of the company by the end of October as it saw the potential for a washout of negative bets, according to a person familiar with the trade. It trimmed its position as retail investors pushed the stock higher, and decided to sell out completely when Tesla founder Elon Musk tweeted “Gamestonk!!” on January 26. The fund made a $700m profit on GameStop, part of a 38 per cent gain in January, according to numbers sent to investors and the person familiar with the trade. Senvest declined to comment. And Jason Mudrick’s eponymous hedge fund group, which swapped debt in AMC for equity, benefited as the world’s largest cinema operator soared from just over $2 mid-month to peak at nearly $20 on January 27. Mudrick, which manages $3.1bn in assets, has gained 19 per cent this year, said a person who had seen the numbers. Mudrick declined to comment. Hedge funds posted their best year of performance in 2020 since the aftermath of the financial crisis, according to HFR. Many funds successfully navigated a huge drop in risky assets as coronavirus hit the main markets, followed by an even bigger rebound driven by central bank and government stimulus. Line chart of Rebased (%) showing Redditors also pushed other beaten-down US stocks higher But 2021’s retail investor-driven surge in share prices has proved an altogether different challenge for the sector, which itself became a target of some investors on Reddit. Gabe Plotkin’s Melvin Capital was the highest-profile casualty, losing 53 per cent last month and seeking a bailout. However, the impact was felt across many other parts of the equity market as hedge funds raced to unwind their bets against other heavily-shorted stocks, pushing those companies higher. They also reduced their positions in other stocks to raise cash, which hit these shares. “[It] certainly has caused volatility for managers. Some quality stocks that were widely held by hedge funds sold off as a result of funds lowering their exposures and covering some shorts,” said Patrick Ghali, co-founder of Sussex Partners, which advises institutions on investing in hedge funds. Recommended LexGameStop Corp GameStop: eye of the beholder Premium

One of the biggest losers from the volatility was Virginia-based Quantitative Investment Management, a computer-driven firm founded by former Société Générale trader Jaffray Woodriff, which manages around $1.4bn in assets. Its Quantitative Tactical Aggressive fund, which bets on rising and falling equity prices across a wide range of positions, suffered a 28.5 per cent loss in January, according to an investor letter seen by the FT. That was the fund’s biggest monthly loss since its launch in early 2008. QIM did not respond to requests for comment. Lee Ainslie’s Maverick Capital, which manages $9bn, benefited from a position in GameStop but lost money elsewhere in the volatility. Its Maverick fund lost 9 per cent, although its long-only fund gained 1 per cent, said a person who had seen the numbers. Maverick declined to comment. Other funds benefited from the choppy markets. Crispin Odey’s Odey European fund gained 22.2 per cent this year to early February, according to numbers sent to investors, having lost around 30 per cent last year. Odey Asset Management declined to comment. Some managers prospered by being careful to avoid similar assaults on hedge funds’ negative bets. “We managed to sidestep substantial losses”, wrote Daniel Loeb, whose Third Point fund is up 8.5 per cent this year, in a letter to investors. After some “previous painful experiences” of betting against stocks with high levels of short interest in the past, he has avoided heavily-shorted stocks. “We had a preview of what can happen”, he said.

https://archive.vn/nQmoY ‘We got lucky’: hedge funds that cashed in on the Reddit rally Surge of amateur investors’ stock bets also boosted returns of some fund managers Stock bets on companies including BlackBerry, AMC and GameStop gave large profits to some hedge funds as retail investors piled in © FT montage; Bloomberg Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Save Laurence Fletcher in London AN HOUR AGO 0 Print this page Be the first to know about every new Coronavirus story Retail investors who dealt a black eye to hedge funds betting against the price of stocks including GameStop last month also delivered years’ worth of gains in a matter of days to a handful of other fund managers. Investors co-ordinating their actions on Reddit drove up the price of GameStop by as much as 2,400 per cent at its peak last month, leading to huge losses for funds betting against them. Beaten-down stocks such as Bed Bath & Beyond, BlackBerry and Nokia also shot higher. The rally in a clutch of so-called meme stocks helped Union Square Park Capital Management to a 12.9 per cent gain last month, making it one of the hedge fund industry’s best performers. “We were never expecting this to happen, it was crazy,” said Leon Zaltzman, a former Lehman Brothers trader and managing partner at the New York-based fund. Zaltzman had bought into casual clothing brand Express Inc last autumn at around $1, believing retailers could be ripe for a pick-up. Express reported a quarterly loss in December, but Zaltzman believed there was “significant upside” potential after the Covid pandemic, according to an investor letter. In a best-case scenario, he had thought the stock could be worth $7 to $8 in two years’ time. Instead, Express rocketed from less than $1 at the start of the year to peak briefly at nearly $14 on January 27. Zaltzman was able to sell his shares at as much as $13.50. Express’s shares have since fallen back below $3. “We got lucky with what was happening on Reddit,” said Zaltzman, whose fund also benefited from a sharp rise in the price of shopping centre owner Macerich. Line chart of Share price ($) showing Retail investors drove GameStop price up by as much as 2,400 per cent Other funds have also reaped the benefits of these share price spikes. New York-based Senvest Management began accumulating shares in GameStop in September last year, increasing its position to more than 5 per cent of the company by the end of October as it saw the potential for a washout of negative bets, according to a person familiar with the trade. It trimmed its position as retail investors pushed the stock higher, and decided to sell out completely when Tesla founder Elon Musk tweeted “Gamestonk!!” on January 26. The fund made a $700m profit on GameStop, part of a 38 per cent gain in January, according to numbers sent to investors and the person familiar with the trade. Senvest declined to comment. And Jason Mudrick’s eponymous hedge fund group, which swapped debt in AMC for equity, benefited as the world’s largest cinema operator soared from just over $2 mid-month to peak at nearly $20 on January 27. Mudrick, which manages $3.1bn in assets, has gained 19 per cent this year, said a person who had seen the numbers. Mudrick declined to comment. Hedge funds posted their best year of performance in 2020 since the aftermath of the financial crisis, according to HFR. Many funds successfully navigated a huge drop in risky assets as coronavirus hit the main markets, followed by an even bigger rebound driven by central bank and government stimulus. Line chart of Rebased (%) showing Redditors also pushed other beaten-down US stocks higher But 2021’s retail investor-driven surge in share prices has proved an altogether different challenge for the sector, which itself became a target of some investors on Reddit. Gabe Plotkin’s Melvin Capital was the highest-profile casualty, losing 53 per cent last month and seeking a bailout. However, the impact was felt across many other parts of the equity market as hedge funds raced to unwind their bets against other heavily-shorted stocks, pushing those companies higher. They also reduced their positions in other stocks to raise cash, which hit these shares. “[It] certainly has caused volatility for managers. Some quality stocks that were widely held by hedge funds sold off as a result of funds lowering their exposures and covering some shorts,” said Patrick Ghali, co-founder of Sussex Partners, which advises institutions on investing in hedge funds. Recommended LexGameStop Corp GameStop: eye of the beholder Premium One of the biggest losers from the volatility was Virginia-based Quantitative Investment Management, a computer-driven firm founded by former Société Générale trader Jaffray Woodriff, which manages around $1.4bn in assets. Its Quantitative Tactical Aggressive fund, which bets on rising and falling equity prices across a wide range of positions, suffered a 28.5 per cent loss in January, according to an investor letter seen by the FT. That was the fund’s biggest monthly loss since its launch in early 2008. QIM did not respond to requests for comment. Lee Ainslie’s Maverick Capital, which manages $9bn, benefited from a position in GameStop but lost money elsewhere in the volatility. Its Maverick fund lost 9 per cent, although its long-only fund gained 1 per cent, said a person who had seen the numbers. Maverick declined to comment. Other funds benefited from the choppy markets. Crispin Odey’s Odey European fund gained 22.2 per cent this year to early February, according to numbers sent to investors, having lost around 30 per cent last year. Odey Asset Management declined to comment. Some managers prospered by being careful to avoid similar assaults on hedge funds’ negative bets. “We managed to sidestep substantial losses”, wrote Daniel Loeb, whose Third Point fund is up 8.5 per cent this year, in a letter to investors. After some “previous painful experiences” of betting against stocks with high levels of short interest in the past, he has avoided heavily-shorted stocks. “We had a preview of what can happen”, he said.

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thanks

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