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 January amid a record rally in GameStop and other stocks the fund was betting on, according to The Wall Street Journal citing people familiar with the matter.
The heavy losses are caused by private investors piling up on popular short targets in hedge funds, including the struggling video game retailer. Shares of GameStop ended last week with a gain of 400%, bringing the total return to 1,625% this year. The stock closed Friday’s session at $ 325. In October it traded below $ 10.
CNBC’s Andrew Ross Sorkin reported last week that Melvin Capital closed its short GameStop position on Tuesday afternoon after heavy losses. Citadel and Point72 have poured nearly $ 3 billion into the fund to support the finances.
Melvin’s assets under management are now more than $ 8 billion – including emergency funding – against about $ 12.5 billion at the start of the year, the Journal said.
Last week’s activity at GameStop expanded to other popular short causes, including Bed Bath & Beyond and AMC Entertainment, with retail investors turning to Reddit’s WallStreetBets forum to discuss various transactions. The forum has tripled its members to 6.5 million in just a week.
Amid the brief press, Robinhood and other brokers have 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 the Wall Street clearing house imposed a tenfold increase in the company’s deposit requirements this week to ensure smooth settlement in transactions of securities experiencing unprecedented volatility.
The rapid rise in GameStop’s stock has prompted some lawmakers to call on regulators to intervene.
“We need an SEC that has clear rules about market manipulation and then has the backbone to come in and enforce those rules,” Sen. Elizabeth Warren, D-Mass., Told CNBC on Wednesday. “To have a healthy stock market, you have to have an agent on the beat.”
Read more in The Wall Street Journal report.