The recent GameStop trading frenzy has prodded legendary trader Steve Cohen to once again open his hedge fund, Point 72 Asset Management, to new investors, FOX Business has learned.
The reason? Well, it depends on who you ask.
In recent weeks, Cohen's hedge fund has taken a significant hit from the GameStop imbroglio, declining as much as 15% in January based largely on a Point 72 investment in Melvin Capital.
Shares fell another 31% on Monday.
Melvin, run by Cohen protégé Gabe Plotkin, was the target of a "bull raid" that focused on heavily shorted stocks that were snapped up by legions of day traders using their Robinhood trading app. Melvin was short GameStop stock, betting it would decline, but instead it rose 1,700% in just a matter of weeks before settling lower in recent days.
But the damage to many shorts including Melvin — and by extension Point 72 — was already done. The losses of more than 50% for Melvin necessitated a cash infusion by Cohen of $750 million so the fund could stay afloat. Billionaire Ken Griffin’s Citadel plunked down another $2.75 billion.
GAMESTOP TRADING FRENZY DRIVEN BY STIMULUS CHECKS: GUNDLACH
The investments were announced last Monday, and then quietly on Tuesday, Point 72 began to approach brokers at Morgan Stanley stating that it has reopened the fund to new investors, and they could offer to their clients, FOX Business confirmed.
It’s unclear what other brokerage firms can now sell Point 72; Morgan Stanley is regarded as Wall Street’s largest brokerage firm with around 16,000 financial advisers serving small investor clients.
After raising $10 billion earlier in the year, Point 72 ceased taking on new clients as it needed to digest the new influx of cash.
The about-face from Point 72 caught Wall Street executives by surprise since it wasn't well telegraphed. Cohen had become a frequent Twitter user following his purchase of the New York Mets during the summer, only to close down his account after news surrounding Melvin and its ill-timed short sale of GameStop and a social media feud with Barstool Sports founder Dave Portnoy.
Wall Street executives say Cohen may be looking to replace his lost capital with new cash because of the heavy losses he incurred through investing in Melvin. A person close to Point 72 tells FOX Business that the fund is not facing a crisis of any type and Cohen believes now is an opportune time to raise new cash amid a market upheaval over the GameStop issues.
A spokesman for Point 72 declined to comment. A Morgan Stanley spokesman had no immediate comment.
The frenzy involving GameStop and a handful of heavily short stocks underscores the changing dynamics of the stock market. Armed with no commission trading apps like Robinhood and the ability to borrow heavily, small, first time, retail investors are flexing their muscles in the markets like never before.
They regularly share information about stocks on message boards, and then target investments in unison, driving up shares to magnitudes not seen before and at least for now causing massive losses to even sophisticated investors on the other side of their trades.
The frenzy that they've caused in the markets has sparked bi-partisan calls for stiffer regulations. The worry is that these investors are both inexperienced and they are bidding up stocks well beyond where they should trade given the target companies’ lukewarm business prospects. When the frenzy is over, the stocks will trade sharply lower leading to massive losses among many small investors who speculated in a market they don't fully understand.
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Many of these newbies say they’re merely turning the tables on some of Wall Street’s top traders. Recently, these investors began to focus not only on GameStop but others including AMC, Blackberry and Bed Bath & Beyond -- former penny stocks -- that were being shorted by hedge funds.
In December, they launched a bear raid on the stocks snapping up shares and pushing them to astronomical levels. Funds that we’re short the stocks such as Melvin and to a lesser extent Point 72—suffered steep losses.
In a short sale, a trader borrows a stock, sells it and hopes to profit by buying it back at a lower price to repay the borrower. But when the stock spikes, as was the case with GameStop and others, the hedge fund loses money; in Melvin's case, it lost so much money it needed a bailout from Point 72 and Citadel.
Robinhood needed a bailout of sorts as well. Last week, the app was forced to lockout the trading of GameStop and the other stocks because it didn't have sufficient capital to settle the trades. On Friday of last week, it raised $1 billion to meet its settlement capital requirements, and on Monday it raised another $2.4 billion.
As FOX Business was first to report, people with direct knowledge of the matter say Robinhood has indefinitely suspended plans to come public through an initial public offering that it was eyeing sometime this year.
Robinhood has around 13 million users now, up from 500,000 in just six years. Its biggest growth has come more recently, particularly during the COVID-19 lockdowns when people — mainly unsophisticated first-time investors — used the app as a form of entertainment. The stock market recovery from its earlier March pandemic lows also brought in new users.
But with growth came growing pains; people close to the company concede that Robinhood needs to possibly expand its balance sheet more and secure compliance systems before going public and facing even more regulatory scrutiny.
A Robinhood spokeswoman didn’t respond to an email for comment.