Hedge fund phenom Dan Sundheim's D1 Capital has been stung by the AMC short bet caught up in Reddit's trading frenzy

  • D1 Capital is the latest high-flying hedge fund to get bitten by the Reddit-fueled market mania.
  • The fund, managed by phenom Dan Sundheim, came into 2020 with more exposure to short bets, which have been eviscerated this month. 
  • The rise of previously struggling AMC Theaters has stung D1, sources told Insider, contributing to a 20% loss for the firm. 
  • Visit Business Insider's homepage for more stories.

Another of Wall Street's most revered and successful hedge fund managers has been stung this month, as an array of popular short bets have been pummeled by a mob of traders connected to Reddit's Wall Street Bets forum. 

D1 Capital, the hedge fund run by billionaire investing phenom Dan Sundheim, has been bitten by a pricing surge in cinema chain AMC Entertainment, which the company had a short position in, according to people familiar with the matter.

Shares in the theater operator have risen nearly 900% this month, and that wrong-sided bet has contributed to a roughly 20% loss for D1 in aggregate, including its private-market capital, according to a source familiar with the matter. Its public-market bets were down closer to 30% by Wednesday, other sources told Insider. 

Bloomberg first reported that the firm had suffered losses. A spokesman for D1 declined to comment to Insider. 

See more: How hedge funds are tracking Reddit posts to protect their portfolios after the Wall Street Bets crowd helped tank Melvin Capital's short positions

D1, which manages $20 billion in capital, has been one of Wall Street's hottest funds since its 2018 launch, and it came into the year riding a high, producing 60% returns in 2020 amid the pandemic. Sundheim, the former chief investment officer of Viking Global Investors, deftly navigated the chaos last year, reducing short exposure and wagering heavily on several companies that benefited from the outbreak such as Chinese e-commerce company JD.com and car e-retailer Carvana.

The firm's 10 largest long positions accounted for 77% of its net assets as of September, according to an investor letter seen by Insider, but Sundheim wrote to investors that the firm was starting to spread out exposure in its portfolio more equally across different names, as three months prior the firm's largest ten positions made up 87% of the firm's public equities' portfolio value.

"Our absolute number of positions has increased to 141 names. This compares to our average position count of 107 names from the start of the year to June 1st, 2020," the letter reads. 

The fund came into 2020 positioned with significantly more exposure in its short book, sources told Insider. 

Short-selling has proven a minefield so far this year, with floundering stocks not only failing to fall, but rising precipitously amid feverish bidding by retail traders.

Daniel Sundheim, Founder and Chief Investment Officer of D1 Capital Partners.Brendan McDermid/Reuters

While GameStop has stolen the show this month, rising to previously unfathomable stock prices and derailing esteemed funds like Melvin Capital and Maplelane Capital, other dreary stocks popular on WallStreetBets have been jolted with life as well, including Bed Bath & Beyond, Blackberry, Nokia, and AMC. 

The beleaguered movie theater chain, which was struggling prior to the Covid-19 crisis, has been forced to fend off bankruptcy several times over the past year as its theaters sat wholly or partially shuttered. Most recently, on Monday it raised $917 million to continue funding operations. 

That helped nudge its stock — which was trading at under $7 a share before the pandemic this time last year — from under $3.51 a share to $4.42 on Monday. But then it gained steam among Reddit traders — it has been one of the most discussed stocks according to dashboards that track stock mentions and sentiment on the website — driving shares to $19.90 as of Wednesday's close.

AMC shares gave up some of those big gains on Thursday morning, and platforms like Robinhood and TD Ameritrade have restricted access to the stock. 

Sundheim is known to be close to Gabriel Plotkin, the founder of Melvin Capital, with whom he shares partial ownership of the NBA's Charlotte Hornets; the pair appeared on a panel together at the 2019 Ira Sohn conference. It wasn't immediately clear whether D1 had any short exposure to GameStop, which has whacked Plotkin's firm to the tune of more than 30% this year as the video game retailer's stock has risen nearly 2,000%. 

Read more: The rise of Dan Sundheim: How a Wharton whiz kid became the LeBron James of investing, launched one of the hottest hedge funds on earth, and minted a billion-dollar fortune in the process

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