This hedge fund has made $ 700 million on GameStop

The GameStop rise is often seen as a triumph of amateurs over professionals. What it was, to an extent. But it was also a trade where professionals compete against other professionals – and few have made more money than Senvest Management LLC, Messrs Mashaal’s and Gonick’s firm.

“When it started its march, we thought, something seeped in here,” said Mr. Mashaal, 55 years old. “But we had no idea how crazy this thing was going to get.”

Senvest’s interest in the video game retailer was sparked by a presentation by GameStop’s new CEO at a consumer investment conference in January 2020.

At the time, most Wall Street analysts had rated the video game store for “hold” or “sell.” The stock was also badly shorted. Mr. Mashaal and Mr. Gonick would learn that some of the top-performing hedge funds on Wall Street, including Melvin Capital Management, were bearish toward stocks due to legal disclosures.

But as they spoke to management, seek out competitors and noted activists’ involvement in the stock, including Chewy Inc. co-founder Ryan Cohen, they eventually started buying. At the end of October, Senvest owned more than 5% of the company and paid less than $ 10 a share for most of the shares.

They thought that if GameStop could hold out until the next generation of video game consoles came out and the demand for games and accessories increased, the company would get a boost. And they reasoned that if Mr. Cohen could help transform GameStop from a largely physical operation into an online gaming destination, the company could be worth a lot more.

Messrs Mashaal and Gonick had been wrong with Senvest before. One case was with opioid producer Insys Therapeutics Inc., although they ended up making money from their short position. GameStop’s stock could soar if caught in a situation where the rising price is forcing bearish investors to buy back shares to curb their losses, they thought.

GameStop is now Senvest’s most profitable investment based on dollars earned and internal rate of return – a performance measure that takes the duration of an investment into account. It has pushed the company’s flagship stock selection fund from $ 1.6 billion in late 2020 to $ 2.4 billion. For January, the fund delivered a return of 38.4% net of fees.

The dominant story so far out of January has been the reversal of the natural pecking order on Wall Street, with hedge funds dealing with significant losses and individual investors taking the win after banding together for the price on a handful of stocks. that were once left for dead. But even before the weakening of this week’s rally, the reality was more nuanced.

Mudrick Capital Management LP, an over $ 3 billion New York hedge fund that provided a lifeline for AMC Entertainment Holdings Inc.

in December, earned nearly $ 200 million largely on AMC in January. The movie theater chain, which had fought bankruptcy, has recently been one of the darlings of shoppers.

Mudrick’s gains come mainly from his positions in AMC debt, which surged last week when AMC’s stock price surged. The fund also made about $ 50 million writing and selling call options on AMC and GameStop stock it owned.

PlusTick Management in Charlottesville, Virginia, which operates an stock and bond selection hedge fund that manages approximately $ 120 million, gained 20% in January, an investor said. Part of the profit came from existing interests in companies, including BlackBerry Ltd.

and the beleaguered owner of the Macerich shopping center Co.

Both companies have recently been advertised on bulletin boards.

“You always squeeze yourself until the last day of the month to know if it’s going to last,” said partner Adrian Keevil.

Other funds got into the weekly call options for GameStop and benefited in some cases, traders said. Given the volume of stocks and options traded on GameStop and other names, they say, individual investors have only driven part of the activity.

“It’s not just short people on the long side here. There are huge players playing on both sides of GameStop, ”said Thomas Peterffy, Chairman of Interactive Brokers Group Inc.

Senvest Management was founded in 1997 by Mr. Mashaal with an investment from Montreal-based Senvest Capital,

his father’s investment company. Mr. Gonick, his former college roommate, joined as co-chief investment officer in 2008.

Senvest invests in 25 to 30 companies simultaneously. The couple describes the fund as a contrarian investor who focuses on value investing, or the discipline of buying cheap stocks that they believe will ultimately yield superior returns. They say they actively discourage their team from attending idea dinners and from socializing with others in the industry, which they say leads to groupthink and crowded positions.

According to a person familiar with the fund, the main hedge fund yields an average of about 18.3% per year for investors through January. It is also very fleeting. It lost 24.1% in 2018, but earned 18% the following year, according to an investor document.

Senvest’s approach does not mean they are above talking to others about investment ideas if it works in their favor.

Brian McGough and Jeremy McLean are analysts at Hedgeye Risk Management, a Stamford, Connecticut, company that sells independent research to institutional and individual investors.

On December 17, when GameStop stock closed at $ 14.83, the pair announced that they were adding GameStop to their long list of “Best Ideas”. The following week, they held a one-hour presentation explaining why they believed the stock could be worth $ 100.

Unbeknownst to Hedgeye’s clients, Senvest had recently pitched GameStop to Hedgeye and drafted his dissertation for the stock.

A person familiar with Senvest said that Hedgeye made an independent call to recommend GameStop. Still, Senvest probably played a role in persuading some individual investors to join GameStop.

“I have a lot of respect for Senvest,” said Mr. McGough. “We vetted it independently and came to a similar conclusion.” He said it is “not very common” to come up with ideas.

Once the rally started in GameStop, a steady pace of development prompted Messrs Mashaal and Gonick to think about saving the stock. The two men were glued to their screens and watched the action. They surfed or snowshoe to let off steam.

When Citadel LLC, Citadel Partners and Point72 Asset Management invested $ 2.75 billion in Melvin Capital last Monday, which was experiencing significant losses, Messrs Mashaal and Gonick suspected Melvin had come out of his GameStop position and wondered how much momentum from the cover of shorts could be left.

After the market closed on January 26, Tesla Chief Executive Elon Musk tweeted “GameStonk !!” a call to the users of Reddit’s WallStreetBets forum, who had put their support behind GameStop.

Senvest, who had slowly shortened his position, decided to leave completely.

“Considering what was going on, it was hard to imagine it getting crazier,” said Mr. Mashaal.

Wednesday afternoon, the company shared the news of its robust GameStop earnings with their customers.

Despite the fading of the rally this week, Senvest said the GameStop story will change some of the way they do business: The company will pay close attention to whether individual investors are discussing a stock on bulletin boards before betting on it or against it.

“I don’t expect that impact to be over,” said Mr. Gonick.

—Geoffrey Rogow contributed to this article.

Write to Juliet Chung at [email protected]