Monday 1 February 2021 10:15 am

Hedge fund Melvin Capital bags billions from investors following GameStop debacle

After losing more than 53 per cent in January, Melvin Capital, the hedge fund at the centre of the GameStop drama, enjoyed a cash injection from investors in the last days of the month.

The firm started the year with roughly $12.5bn, according to reports, but that dramatically dipped after it was at the centre of a short-squeeze, instigated by a group on Reddit.

The New York-based hedge fund sustained a $4.5bn fall in its assets in January to $8bn, even after a $2.75bn cash injection from Point72 Asset Management and Citadel.

The hedge fund had shorted US video game store GameStop, a nostalgia stock favoured among Reddit forum r/wallstreetbets.

A wave of retail investors, comparing notes Reddit, pushed GameStop’s share price up 1,625 per cent during January, to close at $325 on Friday, creating an enormous short-squeeze.

A source told Reuters: “The fund’s portfolio liquidity is strong. Use of leverage is at the lowest level since Melvin Capital’s inception in 2014.”

As news of losses at many hedge funds spread in recent days, speculation mounted about which firms might be forced to shut their doors.

Several investors and fund managers said clients have been more patient with certain firms that have a long and strong track record, likely allowing them to survive this month’s deep losses.