'Ants' Offensive' Causes Wall Street Hedge Fund Titans to Lose Billions of Dollars

New York Mets Owner Cohen Faces Double-Digit Losses This Year... "Retail Investors Keep Piling In" Tweet
Daniel Sundheim's Hedge Fund D1 Capital Partners Reports $4 Billion Loss This Year

[Image source= AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] Bloomberg reported on the 27th (local time) that famous Wall Street hedge fund managers such as Steven Cohen suffered tens of billions of dollars in losses due to the onslaught of retail investors.

As retail investors chasing big wins flocked in, forming a massive force, even the heavyweight hedge fund managers who once controlled Wall Street are now facing unexpected market trends.

Last year, the volatility of the stock market surged sharply due to the impact of the novel coronavirus disease (COVID-19). The S&P 500, for example, plunged to 2191.86 in March last year but rose to 3760.20 by the end of the year. While some investors went bust due to the sharp fluctuations, others hit the jackpot. Retail investors, fueled by fantasies of big wins, flooded the stock market, and as their power grew, even hedge fund managers are being overwhelmed by the strength of these retail investors.

Bloomberg explained that the COVID-19 pandemic last year increased market volatility, and the retail investors who flooded the market created a new force that even overpowered the existing heavyweight hedge funds.

Hedge fund managers who placed short (sell) orders on stocks saw massive buying pressure from retail investors, resulting in uncontrollable losses for the hedge funds. Contrary to the short orders, as stock prices continued to rise, hedge fund managers had to liquidate their short positions by placing buy orders to reduce losses, which further propelled the stock prices upward. GameStop, which has risen more than 1700% just this month, is a prime example. Bloomberg also reported that AMC Entertainment Holdings and Bed Bath & Beyond were targets of retail investors' buying.

Bloomberg explained that hedge funds may have been the cause of the 2.6% drop in the S&P 500 on the 27th. As hedge funds faced increasing losses, they liquidated buy positions to secure cash liquidity, causing a surge in sell orders. The Goldman Sachs Hedge Industry VIP Exchange-Traded Fund (ETF), which tracks major hedge fund returns, plunged 4.3% in a single day, marking its largest drop since September last year.

[Image source= Reuters Yonhap News]

Point72 Asset Management, the hedge fund operated by Cohen, is estimated to have a loss rate of 10-15% this year. Cohen earned 16% last year. Cohen also drew attention last year when he became the owner of the Major League Baseball (MLB) New York Mets in October. When the New York stock market plunged sharply early in the day, Cohen tweeted, "Hey stock jockeys keep bringing it."

D1 Capital Partners, run by Daniel Sundheim, one of the funds with the highest returns last year, is also recording a loss of about 20%. Sundheim achieved 60% returns last year. The asset size of D1 Capital, established in 2018, was about $20 billion at the beginning of this year. A 20% loss means about $4 billion lost. According to an anonymous source, D1 Capital Partners has temporarily closed the fund and is not accepting new investments.

Melvin Capital, a hedge fund managed by Gabe Plotkin, recorded a 30% loss. Since its establishment in 2014, Melvin Capital has posted an average annual return of 30% and achieved over 50% returns last year. However, due to large losses this year, it reportedly received emergency cash support of $2 billion from Griffin and $750 million from Cohen on the 25th to overcome a liquidity crisis. A Melvin Capital representative stated, "The rumors on social media that Melvin Capital will go bankrupt are completely false," adding, "Melvin Capital is managing risks and striving to return profits to investors, and we appreciate the support of our investors."

Maple Lane Capital, managing $3.5 billion in funds, has also recorded a 33% loss this month. Maple Lane Capital is also known to have suffered large losses after placing short orders on GameStop.