Hedge fund makes $700m on GameStop bet
A US hedge fund made $700m (£515m) by riding on the coat tails of amateur investors who bought shares in GameStop in an effort to hurt Wall Street financiers.
Senvest Management, a New York-based investment manager, netted huge gains after building up a stake of more than 5pc in the US video game retailer in September and October when the stock was trading at less than $10, the Wall Street Journal reported.
Frenzied trading last month helped push the shares to almost $500, up from just $4 a year ago.
“When it started its march, we thought, something’s percolating here, but we had no idea how crazy this thing was going to get,” Senvest partner Richard Mashaal told the Journal.
The huge profit is the latest evidence that despite the anti-establishment rhetoric of many users of message boards and social media platforms such as Reddit and Discord, many of the biggest winners from January’s market turmoil were professional investment firms.
Watch: SEC Hunts for Fraud in Social Media Posts That Hyped GameStop
Shares in GameStop and other heavily shorted companies surged as retail investors bought up the stocks in the hope of driving up the share price to inflict losses on hedge funds that had bet on the share price falling.
A fund run by Morgan Stanley, the Wall Street bank, enjoyed a 16-fold rise in the value of itsGameStop holding while high speed market makers benefited from the huge volume of trades sparked by the day traders using the WallStreetBets forum.
The decision by Senvest partners Richard Mashaal and Brian Gonick to back GameStop helped push the value of the firm’s flagship fund from $1.6bn at the end of 2020 to $2.4bn, returning more than 38pc after fees in January.
The pair said they now intend to more closely monitor online message boards used by retail investors before deciding which companies to back.
The collapse of GameStop’s share price to below $100 has left many casual investors nursing heavy losses and US regulators are reviewing whether any rules were broken.
Watch: Hedge Funds Can Handle GameStop Short Squeeze says Schonfeld CEO
