Billionaire Lee Ainslie is telling investors that his $6 billion Maverick Capital is 'poised to take advantage' of the post-GameStop-frenzy market

  • Billionaire Lee Ainslie told investors there’s long and short opportunities thanks to last week’s market volatility.
  • Ainslie said risk appetites have been pumped up due to a potential stimulus and a lack of fear of inflation.
  • Maverick’s flagship fund made 7.2% in the fourth quarter and 15.8% for 2020. 
  • Visit the Business section of Insider for more stories.

While billionaire Lee Ainslie was not an immediate winner following the GameStop-fueled market volatility of last week, he told investors the aftermath of the “Reddit/WallStreetBets war” gave his $6 billion hedge fund with a lot of opportunities.

There have been several examples of immediate Wall Street wins thanks to the Reddit-driven short squeeze that retail traders ran against hedge funds like Melvin Capital, Maplelane Capital, and D1 Capital, such as Senvest Management’s $700 million gain on GameStop and Silver Lake’s $113 million profit on AMC. 

But the market volatility forced many hedge funds to sell off long positions and cut their short books in the biggest deleveraging from managers since the financial crisis, giving managers who made it through last week an opportunity to buy prime securities at a discount. Ainslie wrote to his investors late January that Maverick Capital “has weathered this unwinding storm” and is now ready to pounce. 

“We believe that we are poised to take advantage of the incredible long and short opportunities that have been created by this hedge fund unwind,” he wrote. 

A spokesperson for Maverick did not immediately respond to requests for comment.

As stories filter out of retail traders losing big, Wall Street’s biggest are set to take advantage of a favorable market environment in a way that the average day trader can’t. Steve Cohen’s Point72 raised more than $1.5 billion in a matter of days to take advantage of the opportunities, for example, and Maverick, which has had nearly 60% of its assets invested for more than a decade, highlighted its “steadfastness of our investors” as an advantage in the current markets. 

“Our ability to navigate such challenging periods is enabled by the stability of our investor base,” Ainslie wrote. 

The markets were “primed for the perfect balance of strong earnings and benign inflation” coming into the year, he told investors, as people came into 2021 with “voracious risk appetites” on the expectation of additional stimulus from President Joe Biden’s administration and continued low-interest rates from the Federal Reserve. The “unprecedented” nature of the past year — a word Ainslie said he grew sick of using throughout his eight-page letter — forces his team to look at the market “regardless of past decisions or the current portfolio.” 

Still, Ainslie has been concerned with the national debt for and possibly inflation for a while now — in a discussion 12 months ago at the Economic Club of New York, he said the country’s current path is “clearly unsustainable” — and expands on where he sees the threat now.

He wrote to investors that concerns of the Democratic-controlled Congress and White House passing “imprudent spending or tax policies” leading to inflation will likely hinge on the stances of “just a handful of centrist Democratic Senators” such as West Virginia’s Joe Manchin, Montana’s Joe Tester, Virginia’s Mark Warner, and Colorado’s Michael Bennet. 

“The US yield curve shows that inflation expectations are quite muted, and equity market valuations are very dependent on this conclusion proving correct,” he said in the letter.

“However, the combination of unprecedented (sorry) monetary and fiscal stimulus, massive pent-up disposable income and limited productivity growth could prove to be the perfect recipe for inflation.” 

Maverick’s flagship fund returned 7.2% in the fourth quarter of last year to bring its 2020’s performance to 15.8%, a big rebound after the fund was down more than 13% through the first quarter of last year. This bested the average hedge fund, which returned 11.6% last year, according to Hedge Fund Research. The letter did not disclose how Maverick performed in January.

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