The Curious Case Of The Hedge Fund That Made $700 Million On GameStop
It’s pretty simple how the market can be manipulated, isn’t it? Now, are you really buying we had that “greatest economy in history” under President Trump or are you wising up to how our economy is manipulated using phoney baloney, monopoly money and working the markets? If you haven’t figured it out yet, then you probably want to take a look at how this hedge fund made a whopping $700 million on Gamestop via the working of WallStreetBets a couple of weeks ago.
Tyler Durden has the story at Zero Hedge.
While retail was “sticking it to the suits” – the actual suits at hedge fund Senvest Management were about to net a cool $700 million on GameStop’s run higher. Why? Because GME was the largest Senvest holding as of Oct 7, an oddity considering many within the hedge fund world at the time viewed it as a potential bankruptcy candidate – hardly a prudent move from a fiduciary standpoint, unless Senvest had a plan… and boy did it have a plan.
But let’s back up.
Senvest principles, Richard Mashaal and Brian Gonick, started buying GSE stock equity in September, the Wall Street Journal report reveals, just weeks before they had accumulated a massive 3.6 million shares making Gamestop the fund’s largest holding. Mashaal told the Journal: “When it started its march, we thought, something’s percolating here. But we had no idea how crazy this thing was going to get.”
In retrospect, he just might have had an idea.
GameStop turned into the firm’s most profitable ever investment by dollars earned and IRR. Senvest’s fund has ballooned from $1.6 billion to $2.4 billion as a result of GameStop’s move and, for the month of January, the fund was up 38.4%. Gamestop is also the reason why Senvest is currently the top performing fund tracked by HSBC’s popular Hedge Weekly report.
Thomas Peterffy, chairman of Interactive Brokers, noted what many had suspected: “It is not just little people on the long side here. There are huge players playing both sides of GameStop.”
– Senvest made $700MM on GME.
– "Richard Mashaal and Brian Gonick started buying GameStop Corp. shares in September" – WSJ
— zerohedge (@zerohedge) February 5, 2021
Just a few months later, in December the GameStop long thesis got a major boost among both the retail (outside of WSB) as well as C-grade institutional community, when Hedgeye, which sells research to clients, pitched the name.
On Dec. 17, when GME stock closed at $14.83, Hedgeye told its clients that GameStop was one of their “Best Ideas” and held a presentation as to why the equity, then trading at $14.83 could eventually be worth $100. What Hedgeye’s clients did not know – according to the WSJ – is that Senvest had pitched the idea to them.
Of course, for Hedgeye it would be a knockout blow if it emerged that the firm wasn’t an “independent provider of research” but middle-man and facilitator for hedge funds who had put on trades and then used Hedgeye’s client network as an amplification system… similar to what many accuse hedge funds of doing to r/wallstreetbets right now. Which is why the advisory denied that the upgrade was promptly solely by Senvest’s whispers (we can only assume that Senvest is also a client): “I respect Senvest a lot. We vetted it independently and we came up with a similar conclusion,” said Hedgeye analyst Brian McGough said.
In any case, by late December – between wallstreetbets and Hedgeye clients, the thesis was already widely spreading among the retail community, a process that would eventually culminate with the explosion of the stock price in late January. Why? Because the prevailing narrative was one where one or more hedge funds would never be able to cover their shorts because there was not enough short available in the float to cover, a process the world first encountered with Volkswagen, leading to a huge squeeze.
A squeeze, incidentally, which Senvest was all too familiar with. The WSJ writes:
Messrs. Mashaal and Gonick had been on the wrong end of short squeezes before at Senvest. One case was with opioid maker Insys Therapeutics Inc., though they ultimately made money on their short position. GameStop’s stock could soar if it got caught up in a situation in which its rising price forced bearish investors to start buying back shares to curb their losses, they thought.
They thought… and they were right. All they needed was the critical mass of buyers to ramp an initial buying cascade which would then trigger the squeeze and the rest is history. That’s precisely what happened in mid to late January, when the stock price exploded from $20 to over $500.
Unable to believe their eyes (or perhaps knowing precisely how such a massive short squeeze would play out) Senvest was just waiting for the catalyst to dump it all. They got it on on January 26, when Tesla CEO Elon Musk joined the stock-pumping fray and Tweeted out: “GameStonk!!”.
“Given what was going on, it was hard to imagine it getting crazier,” Senvest’s Mashaal conc
So just a series of very lucky coincidences leading up to a record, $700 million payday, or a masterfully executed plan that was laid out and executed far better than most Hollywood scripts?
We hope to have the answer once Congress holds its Gamestop hearings, although considering that Maxine Waters is in charge we won’t be holding our breath.
I’m not holding my breath either, Tyler.
Article posted with permission from Sons of Liberty Media