The Wall Street players at the GameStop hearing

Citadel Income Fund

17/02/2021 18:37

By Svea Herbst-Bayliss and John McCrank
    BOSTON/NEW YORK, Feb 17 (Reuters) - The public will get the
rare opportunity on Thursday to hear from big hedge fund
managers who generally operate out of the spotlight, along with
other players in the GameStop trading frenzy who are scheduled
to testify in the U.S. Congress. 
    Founders of hedge funds Citadel and Melvin Capital
Management and trading app Robinhood are due to speak at the
hearing which will be livestreamed https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407107.
 So are Keith Gill, who helped fuel the surge in GameStop with
Reddit posts using the tag Roaring Kitty, and Reddit chief
executive Steve Huffman.
    The issues to be discussed are detailed in a memo https://docs.house.gov/meetings/BA/BA00/20210218/111207/HHRG-117-BA00-20210218-SD002.pdf.
 
        
    GRIFFIN 
    Founder and CEO Ken Griffin https://www.citadel.com/leadership/kenneth-c-griffin,
 52, built both the Citadel LLC hedge fund and market making
business Citadel Securities by investing in technology, data and
traders. The businesses operate separately from each other. 
    During the financial crisis Citadel's hedge fund stumbled
badly to end 2008 with a 55% loss. The hypercompetitive Griffin
rebounded, and in 2009 the flagship hedge fund gained 62%. Over
its three decades the hedge fund has returned an average 19% a
year.
    In January, Citadel's hedge fund and securities trading
businesses became central figures in the GameStop story for two
reasons: Its order flow from Robinhood, the app many retail
traders used to buy GameStop, and its role bailing out Melvin
Capital after Melvin's short position on GameStop soured. 
    Citadel Securities, led by Peng Zhao, competes with other
market makers for Robinhood’s order flow and receives a large
percentage of orders based on execution quality. It also pays
Robinhood to process orders it receives. 
    Griffin threw Melvin a $2 billion financial lifeline when it
stumbled, saying he has "great confidence" in the team. In
return he will get exposure to the fund's future returns in
addition to a share of the revenue for years. 
    The move was reminiscent of other times Griffin took
advantage of trouble. In 2006, he bought an ailing energy
portfolio from Amaranth Advisors and in 2007 he snapped up
Sowood Capital’s credit portfolio.
        
    TENEV  
    Chief Executive Officer Vlad Tenev, 34, co-founded online
broker Robinhood Markets Inc in 2013 with the goal of
"democratizing finance for all," by offering commission-free
trading.
    Tenev was born in Bulgaria, grew up in the Washington, D.C.
area, and earned a math degree at Stanford University in
California. He dropped out of a PhD program at UCLA to join his
Stanford roommate Baiju Bhatt in business ventures. The pair
started two New York-based trading software companies before
founding Robinhood back in California. 
    Lockdowns during the coronavirus pandemic turbo-charged
Robinhood's growth, especially among  younger investors. The
company boasts more than 13 million users and is valued at more
than $20 billion, Reuters reported in December, with an IPO
expected this year.
    Lawmakers are likely to question Tenev about the trading
app's decision to restrict trading during the GameStop frenzy,
and Robinhood's role in the "gamification" of stock trading,
which may promote risky trading among retail investors and has
attracted scrutiny in Washington.  urn:newsml:reuters.com:*:nL1N2KJ0BP
    Tenev has faced heavy criticism from some Robinhood
customers and has even been the target of death threats,
according to Bloomberg. Robinhood declined to comment.
        
    PLOTKIN 
    Gabriel Plotkin, one of the world's most successful hedge
fund investors, stated his aim succinctly in August on a YouTube
video: "Just get better every day." He stuck to that motto for
years, with 30% average annual returns from 2014 to 2020 at
Melvin Capital, the fund named after his grandfather, a small
businessman. 
    Plotkin honed his craft at SAC Capital Advisors. He left
when SAC pleaded guilty to insider trading charges but did not
cut ties with founder Steven A. Cohen who was among his first
investors and had $1 billion invested in Melvin last year. 
    Over time, Plotkin developed expensive tastes, say people
who know him. Last year he paid $44 million for side-by-side
properties overlooking Miami's Biscayne Bay and in 2019 he
bought a minority stake in the Charlotte Hornets basketball
team. 
    In January, the hedge fund lost 53% and its size shriveled
from $12.5 billion to $8 billion largely because of a bet that
GameStop's stock would fall. GameStop rose instead thanks to the
Reddit rally.
    Plotkin's short position in GameStop enraged some people so
much that he received death threats. After GameStop's Reddit
rally swamped Melvin with red ink, stunned investors, regulators
and lawmakers want answers to Plotkin's risk management and how
he had left his fund so vulnerable.

 (Reporting by Svea Herbst-Bayliss and John McCrank; editing by
Megan Davies and David Gregorio)
 ((megan.davies@thomsonreuters.com; +1 646 223 6190;))