Mudrick Wins, Eminence Drops as Reddit Rout Hits Hedge Funds

As word spread in late January that Melvin Capital had been the target of a short squeeze that cost it almost $4 billion, hedge fund investors braced themselves for yet another blow after a disappointing decade.

But even though a few funds were walloped by double-digit losses, including Melvin’s 53% drubbing, the industry’s performance numbers last month show that most navigated the Reddit-fueled trading frenzy with only a few bruises.

As a group, long-short hedge funds lost 5.9% on an asset-weighted basis during the month, according to Goldman Sachs Group Inc., compared with a 1.1% drop for the S&P 500. Some smaller stock funds made money, and other strategies did, too.

Glenview, Other Stock Funds Jump in January: Hedge Fund Update

Jason Mudrick’s distressed debt hedge fund reaped almost $200 million in wagers on AMC Entertainment Holdings Inc. and GameStop Corp., whose stocks skyrocketed thanks to the crowd-sourced buying power of retail traders on Reddit.

Mudrick Capital Management, which oversees about $3 billion, gained 9.8% in January, much of it coming from debt investments in AMC, according to a person familiar with the matter. The firm also made money last week selling out-of-the money call options to investors who expected the shares to move higher. They tumbled instead.

Tiger Cubs

The so-called Tiger Cubs -- a group of money managers with ties to Julian Robertson’s Tiger Management -- racked up some losses because these firms tend to have a fairly large portfolio of short wagers. They also tend to traffic in the same stocks.

Glen Kacher’s Light Street Capital Management lost 13% last month, and Steve Mandel’s Lone Pine Capital dropped 6.4%.

Coatue Management ended the month little changed, while Chase Coleman’s Tiger Global Management eked out a 1% gain. Rob Citrone’s Discovery Capital Management, a macro-focused fund, jumped 6.5% for the month, making money on stock, currency and rates trades, a person said.

Other stock-pickers also felt the heat. Ricky Sandler’s $7.8 billion Eminence Capital fell 10.5% last month in his hedge fund, while Whale Rock Capital Management sunk almost 11% in its technology, media and telecommunications-focused fund, people said.

Marshall Wace’s $4.4 billion long-short MW Global Opportunities Fund slumped an estimated 7% in January, its worst-ever monthly decline, according to a letter to investors seen by Bloomberg. The firm’s flagship MW Eureka fund dropped about 1.5%. A spokesperson for the firm declined to comment.

Multi-Strats

The big multi-strategy firms emerged mostly unscathed. Millennium Management gained about 0.5%. Ken Griffin’s Citadel slid 3%.

Steve Cohen’s Point72 Asset Management attracted $1.5 billion in new money, even as the firm lost about 9% in January. Some of the damage came from a $1 billion investment it had in Melvin Capital, whose founder, Gabe Plotkin, worked with Cohen for almost a decade before striking out on his own. Cohen invested an additional $750 million in Plotkin’s firm last week.

Cohen told Point72 investors that he’s opening his fund to new cash because he sees myriad opportunities in the market, according to a person familiar with the firm.

The $3 billion Kirkoswald Global Macro Fund is also opening to new investments. It aims to raise as much as $500 million and has a waiting-list of investors, people familiar with the firm said.

©2021 Bloomberg L.P.

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