For once, Main Street is beating Wall Street.
In a matter of weeks, two hedge-fund legends — Steve Cohen and Dan Sundheim — have suffered bruising losses as amateur traders banded together to take on some of the world’s most sophisticated investors. In Cohen’s case, he and Ken Griffin ended up rushing to the aid of a third, Gabe Plotkin, whose firm was getting beaten down.
Driven by the frenzied trading in GameStop Corp. and other stocks that hedge funds have bet against, the losses suffered over the past few days would rank among the worst in some of these money managers’ storied careers. Cohen’s Point72 Asset Management declined 10% to 15% so far this month, while Sundheim’s D1 Capital Partners, one of last year’s top-performing funds, is down about 20%. Melvin Capital, Plotkin’s firm, had lost 30% through Friday.
It’s a humbling turnaround for the hedge fund titans, who in 2020 staged a comeback by pouncing on the wild markets caused by the Covid-19 pandemic. But that crisis helped push thousands if not millions of retail traders into the U.S. stock market, creating a new force that for now the professionals seem powerless to combat.
And it’s not just the big names: Jack Woodruff’s $2.8 billion Candlestick Capital has fallen 10 to 15% in January on its short wagers, while the $3.5 billion Maplelane Capital lost about 33% through Tuesday in part because of a short position on GameStop, according to investors. By end of day Wednesday, Maplelane was down 45%.
The firm, which was previously closed to new cash, is in conversations with current and prospective investors to raise additional capital, people familiar said. Since its inception in 2010, Maplelane has produced annualized gains of 30% and has never had a down year.
The hedge funds’ assailants are a collection of traders using Reddit’s wallstreetbets thread to coordinate their attacks, which seem to be focused on stocks known for being held short by hedge funds. The most prominent is GameStop, the beleaguered brick-and-mortar retailer that’s soared more than 1,700% this month, but other targets include AMC Entertainment Holdings Inc. and Bed Bath & Beyond Inc.
Read more: GameStop Frenzy Reaches Biden and Powell as Hedge Funds Squeezed
The pain is likely spreading across the hedge fund industry, with rumors swirling among traders of heavy losses at multiple firms. The Goldman Sachs Hedge Industry VIP ETF, which tracks hedge funds’ most-popular stocks, tumbled 4.3% on Wednesday for its worst day since September.
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