![]() Fund managers or risk managers within a fund are responsible for monitoring and managing a dozen or more risk metrics including trading limits, stress testing, liquidity analysis, backtesting, understanding leverage are concentration risk are just a few. The bottom line is that risk should be managed in a way that long-short hedge funds do not lose that much money in such a short time on a single bet or investment.Ĭan We Really Tie Fund Operations to Fund Risk? And a variety of other hedge funds lost 20% plus in just a few trading days either from short sale losses or investments in the trading platform Robinhood which has been the app of choice for many Reddit investors. Several hedge funds lost upwards of 53% in a single 30-day period on GameStop and other investments. Figure – Actual Ryan Eyes Investment Exposure Dashboard A fairly appropriate analogy made by many retail analysts was that GameStop had become the “Blockbuster Video” of the gaming industry.Īs we suggested in our previous blog post, despite its struggling business model, the 5.7 million members of a Reddit group called r/wallstreetbets were buying GameStop shares in an effort to force short-sellers to capitulate driving the price even higher. The gain was shocking to most Wall Street veterans because GameStop is a physical retailer selling physical games and consoles in an industry going through a massive digital transformation in which the vast majority of games are downloaded or streamed. GameStock’s stock surged from about $19 to $483 in just three weeks - a gain of more than 2,400%. The focus of the battle is struggling video game chain GameStop as well as several other companies and their stocks which we discussed in a previous blog post. ![]() Over the past several weeks, an unusual battle has been waged between retail investors and Wall Street’s corporate investment firms over the past week. Let’s take a step back and re-visit the impact of the GameStop, Reddit, Hedge Fund news story to illustrate our “increased risk” point. Will Improving Fund Operations Reduce GameStop-like Risk Events? From research to trading, operational risk and compliance, customer service and marketing and internal and external reporting requirements should all be managed in concert. Front, middle, and back-office workflow and operation need to be visible, verified, tracked and managed to completion within a single, simple solution. Our clients have suggested that adding as much of their workflow processes into a single, flexible platform should provide visibility, critical data, insights, and proactive notifications to the entire staff within the progression of a process or transaction. ![]() Thus, now, the hedge fund clients that we serve strongly suggest that they need to focus on their investment strategies and not get side-tracked or lose transparency in their investment strategies because of workflow, process matters, and other operational issues that may not have previously presented as great a concern.įront, middle, and back-office workflow and operation need to be visible, verified, tracked and managed to completion within a single, simple solution. ![]() However, when the investment environment becomes as unstable as it did with GameStop, AMC, Bed, Bath & Beyond, and several of the other Reddit targets, the investment risk of asset management firms subsequently increased in volatility. Figure – Gamestop’s Business Model and Covid Made the Company a Prime Target for Short Sellers Hedge funds and private equity funds were created to operate as a better investment vehicle than a mutual fund because they could use alternative investment strategies, shorting stocks, for example, and because they were not bound by a stringent set of investing rules in terms of time or industry. We know that inherently, asset management firms leverage investing strategies that often carry higher investment risk so that they can generate alpha or returns higher than their benchmark the S&P 500 index for example. The Reddit, GameStop short squeeze crisis increased client anxiety and uncovered risks stemming from poor transparency and workflow within asset management firms including hedge funds, private equity funds, and alternative asset management firms. How the GameStop Crisis Red Flagged Improving Workflow Management at Hedge Funds
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