What a Hedge Fund King Fears Most


Stephen Mandel, Jr., founder of hedge fund Lone Pine Capital, ranks #752 on Forbes’ list of billionaires.

His net worth: $3.9 billion. His fund’s performance is among the greatest in history.

So you might be surprised to hear what he fears most:


In late January, when retail traders swarmed into short targets of hedge funds like Melvin Capital and D1 Capital, commentators and industry experts called the moves unprecedented, but Mandel sees the parallels between the dot-com bubble excitement and today’s Reddit-directed investors.


“The day I feared the most, every year, was the day after Thanksgiving because it was the day when a lot of people were at home, echoes of what’s going on now — retail traders sitting at their desks,” he said.


He said that the firm’s ethos on long positions — investing in change, whether technological, regulatory, or otherwise — is the same, but shorting has become so expensive thanks to the additional competition in the markets that it’s impossible to make the same alpha in that part of the portfolio.


“There was no problem borrowing Pets.com and eToys and Onsale and all these crazy things. Today, when things like that appear in the markets, the borrow cost shoots up to ridiculous levels immediately, the access to borrow is very limited,” he said about the shares funds that bet against a stock have to borrow from shareholders to hold a short position.


He has a reason to be afraid. Other hedge funds like D1 Capital and Melvin Capital lost 20-50% of their fund trying to fight retail holders of stocks like AMC Entertainment Holdings, Inc. and GameStop Corp.

The cost to borrow and sell short shares of AMC and GameStop is not particularly high at the moment. However, in any new rally, that interest rate could easily shoot up, as GameStop’s did in January. This would make holding or adding to short positions very costly for hedge funds.

And all the while, they’d be losing money as the stock moves against them.

I find it fascinating that the most threatening thing for a billionaire hedge fund manager is a guy sitting on his couch.

Thing is though, there are a lot of them.


More on AMC and hedge funds:

AMC in Top 4% of Stocks for Fails to Deliver

AMC Fails to Deliver Up 1088% in Latest Data

Hedge Funds Get Special Treatment During Margin Calls

Photo: “I’m scared too, but we’ll make it.” by qousqous is licensed under CC BY-NC-SA 2.0

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