More hedge funds are being hit by losses on the recent market turmoil.
Traders say the pain that has afflicted top hedge funds Melvin Capital Management and Maplelane Capital in recent days is spreading, as an increasing number of stocks with significant short interest surge and as funds dealing with losses pull back their exposure to the stock market on both the long and short sides of their portfolios.
That means funds are getting hurt even on previously profitable bets on companies as other funds exit their investments in the same firms. The pain is largely being caused by the broad market turmoil and not one specific stock.
Candlestick Capital Management, a roughly $3 billion Greenwich, Conn., hedge fund started by former Citadel portfolio manager Jack Woodruff, was down in the low- to midteens for the year through Wednesday, said a person familiar with the fund. It was up 26% in 2020, its first year.
D1 Capital Partners, a top-performing fund in recent years founded by former Viking Global investment chief
Dan Sundheim,
was down about 20% for the year through Wednesday. Its substantial portfolio of investments in private companies has buffered the fund from a bigger loss. D1 managed $20 billion at the start of the year.
Steven A. Cohen’s
Point72 Asset Management, which together with Citadel and its partners injected $2.5 billion in emergency financing into Melvin Monday, was down about 10% for the year through earlier this week and suffered losses Tuesday and Wednesday, said people familiar with the matter.
Bloomberg News was first to report the performances of D1 Capital and Point72.
Some funds that have sustained severe losses are seeking influxes of cash to help stabilize their firms.
Maplelane, which started the year with about $3.5 billion and was down roughly 30% for the year through Tuesday, sustained additional losses that saw it down about 45% for the year through Wednesday, said people familiar with the fund. One of the people said the losses Wednesday stemmed from degrossing, or cutting back its exposure to the stock market. That included reducing position sizes and exiting names to limit losses.
Maplelane is a low-profile hedge fund started by former Galleon Group trader Leon Shaulov that has rarely marketed to investors in the past. But it has discussed raising between $300 million and $500 million with potential clients, said people familiar with the fund.
The losses have come during a period of frenetic trading, with shares of companies touted by retail investors such as
GameStop Corp.
and
AMC Entertainment Holdings Inc.
shooting wildly higher. Individual investors on forums like Reddit and Discord have claimed victory for the violent moves, which are unmoored from the underlying fundamentals of companies and which have caught the attention of the White House and regulators.
Both Melvin and Maplelane were short GameStop, with the videogame retailer a significant driver of Maplelane’s losses, people familiar with the matter said. Betting against bricks-and-mortar retailers and on their online disrupters has been a popular theme among hedge funds for years. But it was unclear to what extent, if any, GameStop and other social-media-fueled stocks played a part in the other funds’ losses given violent moves that have spread to the broader market. Some traders have compared the recent market turmoil to March 2020 or autumn 2008.
A sign of the stresses some hedge funds are dealing with:
Goldman Sachs Group Inc.’s
basket of the 50 stocks with the highest short interest as a share of market capitalization was up a total 52.1% for the year through Wednesday, while the S&P 500 was down 0.14% for the period. Meanwhile, Goldman’s basket of 50 stocks that most frequently appear among the largest 10 holdings of hedge funds was down 3% for the period, with the basket starting to fall sharply this week.
Short sellers often will maintain a toehold in a name that is the subject of a short squeeze—when a stock’s price soars, forcing bearish investors to buy back shares they had bet would later fall, to curb their losses. But the velocity and magnitude of GameStop’s rise has made it difficult for some funds to hang in. Funds have also had to fund margin calls by banks, traders say.
On Thursday, some of the stocks individual investors have championed in recent days reversed course as popular online brokerages including Robinhood Markets Inc. restricted access to GameStop and other highflying stocks. GameStop closed at $193.60, down 44% from a day earlier—though it remains up more than 10-fold for the year.
Bed Bath & Beyond Inc.
closed at $33.64, down 36% from a day earlier.
BlackBerry Ltd.
fell 42%. All were the stocks’ largest one-day percent decreases on record. The volume of trading in GameStop and BlackBerry dropped 40% and 49%, respectively, from Wednesday.
Traders described Thursday as a profitable day for hedge funds overall, though the gains were more muted than they would have been given hedge funds broadly cut their exposure to the market earlier in the week.
Write to Juliet Chung at juliet.chung@wsj.com
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