Hedge fund Mudrick Capital lost 10% in just a few days of trading as shares of meme stock AMC Entertainment spiked to record highs, the Wall Street Journal reported, citing people familiar with the matter.

The losses were driven by call options sold by firm founder Jason Mudrick, according to the WSJ. The position, intended to serve as a downside hedge, ended up backfiring as the stock surged too much, too fast.

The runaway share spike occurred on June 2, when AMC shares rose as much as 127%, to $72.62, well beyond the strike price of $40 for Mudrick's options.

Just one day prior, Mudrick had disclosed a $230.5 million purchase of new AMC stock, then immediately sold those shares at a profit, according to a Bloomberg report. Despite the success of that leg of the overall AMC trade, Mudrick's calls on the stock were still held short, leaving them vulnerable to the June 2 surge, the WSJ found.

Mudrick did close out all options and debt positions on June 2, albeit too late to avoid the squeeze. While the fund did earn a roughly 5% return on the debt, it ended up absorbing a net loss of 5.4% because of the options trade.

Though the fund took a hit amid the surge, it's still up about 12% for the year, the Journal said. Meanwhile, AMC, the world's largest movie theater chain, is up more than 2,000% year-to-date. 

Retail traders have been dealing blows to short sellers and hedge funds this year as they've poured into stocks with high short interest rates in order to force a short squeeze. Earlier this year, investors on Reddit's Wall Street Bets led a share price surge in GameStop, which caused short sellers to lose billions. 

Amid the renewed meme-stock interest in recent weeks, short sellers have continued to lose money in retail-trader favorites like AMC and GameStop. The meme stock trade has scared off many short sellers from heavily betting against certain stocks. 

Read more:Goldman Sachs says these 40 popular stocks can be used to play the meme trade as surging retail volumes create huge money-making opportunities for investors who know when to get out

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Inflation is on every investor's mind, and for $2.5 billion one hedge fund manager, a rise in prices is welcomed.

Crispin Odey, the British founder of the Odey Asset Management, wrote to investors in his $71 million Odey Special Situations fund that inflation is here to stay, despite "the stipulation by the US Federal Reserve ... that the recent pick up in inflation is related to the post-covid reopening trajectory and therefore is likely to be temporary in nature."

While inflation is seen as one of the few things that would reign in the record-setting equity markets, Odey wrote that "an inflationary environment can result in a golden period" for mergers that his fund could make money off of. 

"A more promising aspect of the inflationary environment faced is that it can provide highly accretive conditions for one of the most lucrative areas of [Special Situations fund] capital deployment – the merger arbitrage situation subject to competitive bidding by multiple acquirers," wrote Odey, who in March was cleared of charges that he assaulted a woman at his London apartment in 1998. 

Merger arbitrage strategies make money via market inefficiencies when mergers are announced. Often, companies that are being bought will be trading for less than the purchase price — giving quick investors an opportunity to make relatively risk-free returns. 

In an inflationary environment, Odey wrote, there are often multiple bidders attempting to purchase a target company — thus driving the target's stock higher. The letter revealed a large stake in South African alcoholic drinks conglomerate Distell — nearly 10% of the fund's assets — because the company is "subject to a takeover from Heineken." Odey expects other buyers to be interested, calling it a "live example" of his strategy.

Since news of Heinenken's potential takeover leaked in mid-May, Distell's stock has increased by roughly 18%.

"In such environments it is not only that a competitive bidding trajectory can recognize the full asset value of an asset, but also that the valuation that a bidder will pay for an asset or earnings stream whose economics are highly robust to inflation will rise to a premium multiple," he wrote. 

"The sale process for Distell process is not only likely to attract other suitors in competition with Heineken but will also result in an ultimate transaction value significantly higher than Distell's share price at the May month end." 

Odey's fund lost less than 1% in May, according to the letter, and is up roughly 8% for the year through the first five months of 2021. That trails the average fund, which is up nearly 10% through May this year, according to Hedge Fund Research. Since launching the fund in October 2019, the special situations offering has returned 38%.  

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London's hedge-fund scene will have a new player come fall.

Former Bank of America executive Julien Bahurel is set to launch equities-focused Como Capital in either October or November, sources told Insider, with around $700 million in capital.

Bahurel's most recent role at Bank of America was head of equities for Europe, the Middle East, and Africa. Insider previously reported that he left his role last summer, and was replaced by Martina Slowey. He also previously worked at UBS and Morgan Stanley.

Sources said the team is expected to launch will be at least ten people, but many are serving non-competes and cannot be linked publicly with the new manager. Sources say there will be staffers from the buy-side and sell-side joining the new venture. 

The appetite for new funds has increased as the vaccines have been rolled out and business travel has somewhat resumed. Prime brokers expect the rest of the year to have a wave of launches as allocators can meet with managers in-person again after a slowdown last year.

In London, new funds are expected from former York Capital portfolio managers Jack Land and Christophe Aurand later this year. 

New managers in the US include $500 million Pinnbrook Capital from former PointState deputy CIO Zachary Kurz and Alex Karnal's healthcare-focused manager Braidwell.

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Hedge fund bosses are planning to ramp up their holdings of cryptocurrencies, predicting that an average of 7.2% of their assets under management will be held in digital tokens by 2026, a survey has found.

That would equate to around $313 billion of cryptocurrency holdings, based on an estimate of the future size of the hedge fund industry, according to Intertrust Group, which carried out the research.

The finding is a sign that many potential institutional buyers are not being put off by bitcoin's recent plunge, but see cryptocurrencies as a long-term strategy.

"Certain cryptocurrencies, such as bitcoin and ethereum, have delivered incredible – albeit volatile – performance in recent years," said Jonathan White, global head of fund sales at Intertrust, a Netherlands-based professional services group.

"Inevitably, they have drawn growing interest from hedge funds as well as institutional and retail investors."

Intertrust's survey, first reported by the Financial Times, found that one in six respondents expect their funds to have more than 10% in cryptocurrencies in five years' time. Just shy of all respondents said they expect to have at least some crypto investments by then.

The company polled 100 chief financial officers at hedge funds around the world, with average assets under management of $7.2 billion.

North American hedge funds were the most bullish on crypto, predicting that they would hold around 11% of their assets in digital tokens by 2026.

Given the secretive nature of the hedge fund industry, it's unclear how much crypto exposure these institutions currently have. Yet most hedge funds that have moved into the space have only committed a small amount. For example, Brevan Howard plans to invest up to 1.5% of its main $5.6 billion fund in cryptocurrencies, it said in April.

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If you can think of a data set, it's most likely out there — and if you can't find it, then you aren't looking hard enough.

At least that's what Matthew Rothman — the deputy of quant strategies for Israel Englander's $52 billion Millennium — said at Tuesday's Neudata digital conference. Rothman, who has helped build up Millennium's new quant platform with the former Cubist head Ross Garon over the past 12 months, said the tidal wave of data had made some people forget data's purpose in the investing game: alpha.

"We were almost like kids in a candy store" five years ago, when new multi-use data sets were being introduced, Rothman said. Credit-card data, geolocation data, cellphone data — all of it can be used across different industries and stocks.

But the data reality is there hasn't been a can't-miss data set to come out in years, according to Rothman, who also teaches at MIT.

"It's been a while since I saw something where I was like, 'Wow, I've never seen something like this before,'" he said.

It's hurting alpha at the largest quant funds, which need strong signals that can be applied to many different securities, Rothman said. One of the ways Millennium's quant platform has protected against this is by recruiting "low-capacity, high-Sharpe" quant teams to run a multitude of diverse strategies instead of piling billions into bread-and-butter quant strategies. 

With smaller teams focused on the more obscure corners of quant investing, Rothman said the platform could more easily find alpha.

The firm is still searching for the next multi-use data set, with both internal teams and outside consultants like Neudata, which is a London data company. But Rothman has found the most important data sets to come out recently to be more thematic than secular, such as data on Reddit traders.

"It's not a cross-sectional signal the way credit-card data was," Rothman said.

He outlined four subgenres of alternative data that deliver alpha: speed, granular, curated, and distinct. Alpha from speed and granular forms of alt data provide information quicker and more in-depth, respectively, than traditional data sources have, which gives an investor an advantage. 

Curated data sets involve combining multiple streams of information to create something new that no one else has — a clear form of alpha that also requires a lot of resources, such as data scientists. But distinct data has been missing in the marketplace for years, Rothman said. 

"It used to be a lot more common" to find "once-in-a-lifetime data that no one else had," he said. But as alternative data's popularity grew, so did the number of people searching for the best info.

Because of this, many of the top quants have been building out bigger and bigger data-science and engineering teams so they can create more curated data sets out of the information they already have. Two Sigma, for instance, just hired a former senior engineer from Google to be its head of data engineering and is planning to aggressively hire for his team.

Millennium is no different, and Rothman said he expected people to know Python and stats but also hoped they had "deep skepticism."

"We want people who aren't afraid to call hogwash on things, even if it's their own work," he said. While everyone is getting more advanced — using machine-learning programs and artificial intelligence to read earnings transcripts — Rothman said he interviewed too many engineers who struggle with basics.

"Worry about if your data is clean" before embarking on a massive project, he said, adding: "What we are missing in data engineering and data science is common sense."

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Hedge fund D1 Capital Partners, run by billionaire Dan Sundheim, is continuing to ramp up its private market bets — having invested in at least 35 private companies in 2021 so far. 

The $21 billion hedge fund has been making private investments in startups since its launch in 2018. Popular among fellow Tiger Cub firms Tiger Global and Coatue Management, private investing continues to take the hedge fund world by storm this year. 

As companies choose to stay private for longer periods of time and the number of public companies in the market has declined, hedge funds are turning to startups as a source of differentiated returns. They have won deals against traditional venture firms by offering startups lucrative 50% to 100% premiums, according to private markets data provider Pitchbook. 

D1, like many other hedge funds, made headlines in January for its losses in the public markets when popular short bets like Gamestop and AMC were pummeled by a mob of day traders. However, D1 was relatively insulated from this downside because, as Insider reported in October 2020, almost one-third of its capital is invested in private market bets, some of which have produced substantial profits.

One of its initial investments, a $160 million bet on cold-storage firm Lineage Logistics, appreciated over 150% during the pandemic. The fund has also invested in widely recognized names such as popular trading app Robinhood, Elon Musk's rocket company SpaceX, and salad unicorn Sweetgreen.

D1 powered full speed ahead in 2021 and we outlined each of the hedge fund's publically-announced investments below by sector with data provided by Pitchbook. Its investments this year so far have coalesced around logistics, enterprise software, e-commerce, consumer tech, healthcare, and fintech.

A spokesperson for D1 declined to comment on the firm's strategy or sectors of interest.

Logistics

Lalamove

Lalamove, a Hong Kong-based on-demand and same-day delivery trucking company, raised a $1.5 billion Series F on January 20 led by existing shareholders such as Sequoia Capital China and Hillhouse Capital. The Series F, raised less than a month after its $515 million Series E, valued the firm at $10 billion. D1 was a new investor in the Series F round, joined by Boyu Capital, Tiger Fund, and others. 

Lineage Logistics 

Michigan-based cold-storage REIT Lineage Logistics raised $1.9 billion in new equity on March 11 from new and existing investors including D1, Oxford Properties, and Morgan Stanley Investment Management's Tactical Value Investing unit. The capital raise follows the company's January acquisition of Cryo-Trans, an owner of refrigerated railcars. The REIT has since announced two acquisitions, including Spanish refrigerated warehouser Frinavarra and Dutch freight company UTI.

Enterprise Software

Lacework

Lacework, a security and compliance SaaS platform based in San Jose, CA, closed a $525 million Series D growth round on January 7. The round, led by Sutter Hill and Altimeter, featured participation from D1, Coatue, Dragoneer, Tiger Global and others, valuing the company as a unicorn at $1 billion.

Latch

Latch, an enterprise software-as-a-service (SaaS) provider for buildings that is known for manufacturing smart locks, raised a $190 million PIPE on January 26 in conjunction with its announcement that it would merge with TS Innovation Acquisitions Corp., a Tishman Speyer-sponsored SPAC. Shares of the SPAC began trading in early June, valuing the company at an implied $1.5 billion. D1 invested in the PIPE alongside BlackRock, Durable Capital, and SPAC enthusiast Chamath Palihapitiya.

Drivenets 

D1 led the Israeli Infrastructure-as-a-Service vendor's $208 million Series B on January 27. Drivenets, which provides network software, was valued at over $1 billion with the new round. New investors D1 and Atreides Management joined existing investors Bessemer Venture Partners and Pitango in the round.

CCC Information Services

CCC Information Services, a SaaS provider for property & casualty (P&C) insurance, raised a $150 million PIPE on February 3 for its SPAC merger with Dragoneer Growth Opportunities Corp. D1 participated in the PIPE alongside Altimeter Capital Management, Coatue, Franklin Templeton, and others. 

Shippo

Shippo, a shipping software company for e-commerce companies, raised a $50 million round led by Bessemer Venture Partners that valued the company at over $1 billion, Bloomberg first reported on June 2. While it is unclear whether D1 participated in the latest round, D1 led the company's $45 million Series D this past February and its $30 million Series C in 2020. 

Squarespace

Squarespace, a website-building and e-commerce platform, raised a $300 million growth round at a $10 billion valuation on March 16. D1 came in as a new investor alongside Dragoneer, Fidelity, and others. The company's common stock started trading on the New York Stock Exchange on May 19 under the ticker "SQSP" in its direct-listing IPO. 

Attentive 

Attentive, an NYC-based personalized text messaging platform for businesses to connect with customers, raised a $470 million Series E on March 24 with participation from existing investors—Coatue, D1, Tiger Global, and IVP—along with a new investor, Base10 Partners. The round brought the total Attentive has raised to $866 million.

Ramp

Ramp, a provider of corporate cards and spend management software, raised a $115 million Series B on Apr 8. The funding comprised two tranches, a $65 million investment led by D1 that valued the startup at $1.1 billion and a $50 million investment led by online payments company Stripe which pushed its valuation to $1.6 billion.

6Sense

D1 led a $125 million Series D round for 6Sense, an AI-powered B2B sales and marketing platform, with participation from Sapphire Ventures and Tiger Global, on March 30. 6Sense, which aims to help companies improve revenue results through account engagement strategies, was valued at $2.1 billion after the round.

OneStream Software

Michigan-based OneStream Software raised a $200 million Series B on April 6 at a $6 billion valuation. D1 led the all-primary funding round for OneStream, which provides B2B corporate performance management (CPM) solutions with Tiger Global and Investment Group of Santa Barbara.

Procore

Construction management software provider Procore Technologies postponed its plans to go public to raise $150 million in incremental funding from new investor D1 and others, bringing its valuation to $5 billion, Bloomberg first reported on April 30. It had filed an S-1 registration statement before the round and could still go public this year, sources told Bloomberg. 

E-Commerce and Consumer Tech

Rivian 

Rivian, an electric-truck startup backed by Amazon and Ford, raised a $2.6 billion Series F on January 19. T. Rowe Price led the round, joined by D1, Fidelity, and Amazon's Climate Pledge Fund. Amazon previously led Rivian's $700 million funding round in February 2019. 

Instacart

Grocery delivery platform Instacart raised $265 million in a Series I round on March 2 from current investors including D1, Andreessen Horowitz, and Sequoia Capital. The Series I round valued Instacart at $39 billion. D1 also co-led the company's previous financing in October 2020 along with Valiant Peregrine Fund. 

goPuff

goPuff, a delivery platform for everyday items, doubled its valuation in five months, raising a $1.15 billion round on March 23 that valued the company at $8.9 billion. D1 founder Sundheim said in the press release that the "company's vision and differentiated model drive industry-leading economics and sustainable growth." D1, a new investor, led the round with existing investor Accel.

Loft

In one of Brazil's largest venture rounds, digital real estate platform Loft raised a $425 million Series D led by D1 on March 23. The company was valued at $2.2 billion after the round, its first after its January 2020 Series C that brought it just shy of unicorn territory in terms of valuation.

Dream11

Dreamsports, parent company of Indian fantasy sports platform Dream11, raised $400 million on March 24, doubling its valuation to $5 billion. The secondary investment round was led by new investors including D1, TCV, and Falcon Edge, with participation from existing investors like Tiger Global, ChrysCapital, and TPG Growth. Dream11's new valuation brought it to the league of India's most valued unicorns like OYO ($9 billion) and Zomato ($5 billion).

Cazoo

British used-car dealer Cazoo raised an $800 million PIPE on March 29 to support its $7 billion announced merger with SPAC AJAX I. The PIPE was led by the AJAX sponsors and D1 and joined by new and existing investors including Altimeter, BlackRock, Morgan Stanley Investment Management's Counterpoint Global unit, and Fidelity Management.

Kavak

Kavak, a SoftBank-backed used car platform that became Mexico's first tech unicorn in October 2020, raised $485 million in Series D funding on April 7 at a $4 billion valuation. The round, led by US firms D1, Founders Fund, Ribbit, and BOND, more than tripled its last valuation of $1.15 billion and cemented Kavak's status as one of the top five highest-valued startups in Latin America. 

Misfits Market

D1 co-led the D2C "ugly" produce delivery service's Series C with Accel. Misfits Market, based in Philadelphia, raised $200 million in the round at a valuation over $1 billion, making it a newly minted unicorn. Existing investors including Valor Equity Partners and Greenoaks Capital also participated in the round, which was announced on April 21. 

SmartRent

Scottsdale, AZ-based residential smart-home operating system SmartRent raised a $155 million PIPE in conjunction with its April 21 announcement that it would merge with blank-check company Fifth Wall Acquisition Corp. The proptech company's PIPE included participation from mostly real-estate focused investors like Starwood Capital Group and Invitation Homes alongside D1.

Daring

Plant-based chicken producer Daring, founded in 2018, announced a $40 million Series B funding round on May 18. D1 led the round with participation from existing investors Maveron and Palm Tree Crew, along with entertainer and musician Drake. 

Guild Education

Guild Education, a Denver, CO-based startup that helps workers with learning opportunities, raised $150 million at a $3.8 billion valuation, it announced on June 2.  The round included funding from D1 as well as existing investors Bessemer Venture Partners, Cowboy Ventures, Emerson Collective, and others.

Faire

Faire, an online wholesale marketplace that connects small retailers with small brands, raised a $260 million round led by Sequoia on June 11. D1 also participated in the round alongside Lightspeed, Founders Fund, Khosla Ventures, Dragoneer Investment Group, and others.

Healthcare and Biotech

Inflammatix

Inflammatix, a molecular diagnostics company focused on acute infections and sepsis, raised a $102 million Series D on March 15 led by D1. Existing investors, including Northpond Ventures, Khosla Ventures, Think. Health, and OSF Healthcare Ventures, also participated. 

Rapid Micro Biosystems

D1 led an $81 million Series D1 round for Rapid Micro Biosystems, which provides technology for microbial detection in biopharmaceutical manufacturing, on March 16. Rapid Micro Biosystems had raised $340 million total including the Series D1 round, in which D1 was a new investor alongside BlackRock and T. Rowe Price.

AbSci

AbSci, a synthetic biology and drug discovery company, raised $125 million in crossover financing on March 23. The round was led by existing investors Casdin Capital and Redmile Group and included participation from new investors including D1 and Fidelity.

Inscripta

Inscripta, a digital genome engineering company, raised a $150 million Series E on April 5. D1, a new investor in the round, participated alongside new investor Durable Capital and existing investors Fidelity and T. Rowe Price. Inscripta announced the round in conjunction with its first commercial sale of its genome-editing and analysis platform, Onyx. 

PathAI

PathAI, a global provider of artificial intelligence-powered technology for pathology, announced it had closed $165 million for its Series C financing on May 18, co-led by D1 Capital Partners and healthcare plan provider Kaiser Permanente. Other investors included Tiger Global Management, venture capital firms General Atlantic and 8VC, and strategic partners such as Bristol-Myers Squibb Company and Labcorp.

Heru

Heru, a developer of wearable AI-powered vision diagnostics and augmentation software that spun out from Bascom Palmer Eye Institute, closed its Series A financing of $30 million on May 20. The Series A funding round was led by D1 with participation from SoftBank Ventures Opportunity Fund and a consortium of both individual and institutional investors with experience developing medical technologies. 

Fintech

HighRadius

HighRadius, an AI-powered fintech enterprise SaaS platform, raised a $300 million Series C on March 30. The company, which automates treasury management processes, was valued at $3.1 billion after the round led by D1 and Tiger Global. 

DLocal

Uruguayan payments platform DLocal listed its shares on the Nasdaq on June 3, initially pricing at $21 per share and trading at just over $30 per share as of June 15. The platform, which connects global enterprise merchants to consumers in emerging markets, last raised a $150 million funding round on April 2 at a valuation of $5 billion. Alkeon Capital led the round alongside D1, BOND, and Tiger Global. 

TransferWise

D1 participated in a $319 million secondary sale round for the London-based international money transfer service, Sky News first reported on July 6.  The round, which entailed existing investors selling shares to other investors and therefore did not bring new funding to the company, jacked up its valuation to $5 billion. D1, a new investor in the round, co-led with existing shareholder Lone Pine Capital, and existing investors Bailie Gifford and Fidelity Investments also participated. 

Addepar

Wealth management platform Addepar, which has $2.7 trillion in client assets, announced a $150 million investment from D1 at a valuation of $2 billion on June 15 as part of its Series F financing.

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Nir Bar Dea wants his employees to enjoy their vacations more than he does.

Bar Dea, the deputy CEO of Bridgewater Associates, told Insider in an interview that while he takes a fair amount of time off, he often ends up on his laptop by the pool. The reality is that new work dynamics make it easy to just hop on a quick Zoom call, Bar Dea said, instead of completely disconnecting.

As workers across industries battleburnout thanks to the blurred lines between work and home during the pandemic, the biggest hedge fund is rolling out a new paid-time-off policy to make sure employees are taking a minimum amount of vacation each year. Two goals of this new flexibility at Bridgewater are to attract and retain top talent.  

"We've always thought about how to make sure that people don't burn out," Bar Dea said. "How do you take these dedicated people and make sure they take the breaks they need? But those questions have become more complicated now."

Bridgewater employees must take at least 15 days off every year

The new policy from Bridgewater has two pieces. First is a minimum of 15 days off a year, with no maximum. As a result of scrapping a fixed number of paid days off, people can no longer accrue days or roll them over. Second is six new company holidays, which often land before a three-day weekend and turn them into four-day breaks.

In total, the company will have 16 holidays in which "the bare minimum" number of employees, similar to who's in the office on weekends, will be in the office. Bridgewater announced the policy to employees earlier this month, and it goes into effect at the end of the month.

The firm is planning to adopt a flexible working arrangement with its staff come September. Employees will be expected to work from the office a couple of days a week, including one day where everyone at the company will be in. The all-company day is primarily for collaboration and brainstorming.

The critical thing the $140 billion manager is trying to avoid is "one person's flexibility becoming another's burden," Bar Dea said. That way, when someone takes a day off or is working remotely, that person's colleague isn't working twice as hard to cover for them.

'Our employees are telling us'

Bridgewater is known for its culture of "radical transparency." Employees at the firm consistently evaluate each other's performance and share frank feedback. The environment can be polarizing: According to founder and former CEO Ray Dalio, about 30% of new hires leave Bridgewater within 18 months. But Bar Dea said one-quarter of Bridgewater's employees have been there for more than a decade.

In 2020, the firm lost about $12 billion as the manager's systematic models were overrun by the volatility at the beginning of the pandemic. Bridgewater conducted layoffs across teams.

Performance has rebounded though, as the firm's Pure Alpha is up nearly 16% and its All-Weather fund is up more than 20% in the 12 months starting June 2020, sources told Insider.

Bar Dea said Bridgewater employees generally tell their managers what they think of a specific decision. The new policy for paid time off, he said, grew out of feedback from employees that they were struggling with setting boundaries in the hybrid workplace.

"This is not some top-down theory," Bar Dea said. "This is an outcome of a conversation with our employees that are telling us: Here's what's important to us. Here's what's working for us."

It positions the manager in contrast with many of the largest financial-services companies. CEOs from companies like Goldman Sachs and JPMorgan Chase have said that being physically in the office is important for employees and the company overall. 

Morgan Stanley CEO James Gorman said at a conference on Monday that "if you can go into a restaurant in New York City, you can come into the office." 

Among hedge funds, the tone has been more flexible. Two Sigma, for instance, will experiment with a hybrid remote policy when it asks employees to come back in September, Bloomberg reported. 

The learning process

Bridgewater leadership is approaching the PTO changes as an experiment. 

Bar Dea said management didn't yet know what optimal work flexibility would look like.

"We have to experiment, have conversations with our people, see what's happening around us, and be ready to evolve," he said. "We're totally gearing ourselves up to be in a learning process."

Bridgewater surveys its employees regularly and will solicit their input on the new PTO policy, Kate Manahan, the head of human-resources benefits, said.

In the meantime, leadership is supposed to model healthful work practices, Manahan said. "I pretty liberally take time off," she told Insider.

When the new PTO policy was announced, Manahan sent her team a note outlining her approach to PTO in her own work schedule. 

Bar Dea said the new flexibility would presumably help Bridgewater improve diversity and inclusion in its workplace, since people can work when and where they want.

But it's possible that certain groups of employees will take greater advantage of the flexibility and miss out on face-to-face interaction with their managers, which could lead to diminished career opportunities. Research by the Stanford economist Nicholas Bloom found that female employees with kids were more likely to choose remote work than their single male counterparts. Letting employees choose when and where they work could trigger a "diversity time bomb" and then "a whole plethora of lawsuits," Bloom told Insider.

This type of dynamic is something leadership is watching out for.  "I can also totally imagine a world in which this is less inclusive," Bar Dea said.

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The woman who manages the fortune of one of the world's richest men said she recommends steering clear of late-stage private companies and thinks large-cap tech companies are a strong long-term investment. 

Dawn Fitzpatrick — the chief investment officer for Soros Fund Management, which runs billionaire George Soros's vast fortune — said that while March of 2020 was a time for action, June of 2021 is a time for patience. Speaking at the New York poverty-fighting charity Robin Hood's annual conference Wednesday, Fitzpatrick said Soros is in the process of rebuilding its cash reserves after putting money to work last spring when the pandemic shut down the global economy. 

The $27 billion manager made 30% last year, according to Bloomberg, thanks to aggressive moves in the equity markets last spring.

Insider was told about Fitzpatrick's comments by an individual who attended the virtual conference, which attracts some of the biggest names in finance but is closed to the press. Fitzpatrick made the comments during a panel discussion alongside Bridgewater Associates' co-chief investment officer Greg Jensen and One River Asset Management CEO and CIO Eric Peters. Billionaire Paul Tudor Jones, a longtime Robin Hood backer, moderated the session. 

Fitzpatrick said some assets have over-the-top valuations. Late-stage private companies in particular are overvalued, partially due to the SPAC boom, she said. Desperate SPAC sponsors, she said, are giving attractive terms to investors who buy into the PIPE funding, which sponsors often need to close mergers. These investors who buy into the PIPE fundraising have enormous leverage, she said.

Fitzpatrick, who is a macro investor, said the Federal Reserve's decision to continue its policy of low rates is worth the possible inflation risks at the moment. While the yield curve looks healthier, according to Fitzpatrick, there are real short-term economic risks, especially as states opt out of the expanded federal unemployment benefits.

Still, the building debt and reliance on low-interest rates will eventually have some effect, she said, which could hurt the value of the US dollar. The dollar's status as the reserve currency of the global financial system is something the Fed and other policymakers are taking for granted, she said.

When asked by Tudor Jones what she would pick to invest in and hold for the next ten years, she picked large-cap tech companies, which she thinks are currently trading cheaply. 

Soros declined to comment on the remarks.

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Fellow Goldman Sachs alums Gabriel Hammond and Nathan Miller are constantly on the lookout for uncorrelated sources of return from their investments.

The pair, who have spent two decades working in fund management, went their separate ways after a spell at the investment bank and teamed up again at New York-based asset manager Emles Advisors, which Hammond co-founded.

Hammond, who founded energy-focused firms Alerian Capital Management and SteelPath MLP, had been looking for ways to get the kind of results that high market volatility brings but without the huge risk. 

He spotted an opportunity with his long-term friend, mentor and former colleague, Miller, a contrarian value investor that had spent the past 20 years running classic long/short strategies at various hedge funds, including SAC Capital and Citadel.  

What caught Hammond's attention was Miller's calling of the COVID-19 market collapse at the start of 2020.

"I mean he absolutely made a killing positioning himself correctly in late February, early March of last year and before anybody was talking about it," Hammond said. "Again, his engineering background really lends itself to the type of diligence and those special situations and that was really eye opening." 

Hammond had to find a way to work with Miller based on his track record of performance following this strategy for years.

For the last ten years, Hammond has achieved annual returns of 50% within his personal accounts, according to documents seen by Insider. 

Together, they launched the Emles Alpha Opportunities ETF, a hedge-fund style active ETF with a long/short strategy that can be marketed to both retail and institutional investors.

Insider spoke to the pair about their approach to investing and their take on the meme-stock frenzy that has taken the world of trading by storm. 

Investing like a hedge fund

"If we can get an event or a catalyst and combine it with something that's really, really cheap, that's a powerful way to compound money," Miller said.

Miller is looking for stocks with a one-to-three risk-reward profile and is exclusively focused on outliers that are dramatically overvalued or undervalued relative to their intrinsic value.

"We're focused on putting up very high returns," Miller said. "That's why we call it a hedge fund-like product."

The strategy they use for their ETF is one of active management that deploys hedge-fund style strategies, such as shorting index, or single-stock options, but without the focus on the leverage.

"We're totally unwilling to take the unsafe levels of leverage and margin that most hedge funds employ," Miller said. "We know the inherent dangers, we don't think it's well understood by bulge bracket investment banks, you look at the number of funds that got destroyed on the Archegos unwind. That's a very clear example of how leverage is catastrophic."

Miller believes in the reversion to the mean and has the goal to produce alpha in both the bear and bull markets.

"We like to buy stocks when they're cheap," Miller said. "Companies and sectors can go through periods where they're over earning, or frankly, sentiment is just too high and so you see that today, there are bubbles, in our opinion, all over the place." 

How the "meme-stock movie" ends

One very obvious example of a bubble is the meme-stock frenzy in which traders have pumped up the share prices of companies like video-game retailer GameStop, movie theater chain AMC, the makers of now-almost defunct mobile devices like BlackBerry or Nokia, and cryptocurrencies on social media.

Much of their efforts have centered on stock of companies that big hedge funds had sold short, or bet against, rather than on those firms' business models.

"It's disturbing for a fundamental investor to look at stocks that are untethered to fundamentals," Miller said.

As a contrarian, Miller is paid to be skeptical. He's currently cautious on disruptive, innovative thematic funds that are buying growth names but are agnostic to valuation. That's very dangerous, he said.

"I think we know how the movie ends," Miller said. "I may not know every chapter in the book, I would be very cautious on the meme stocks, and stocks in general that are unrelated to fundamentals."

Hedge funds over the years have faced increasing scrutiny over high fee structures and excessively risky strategies without delivering on their promises of outperformance.

Hammond points out how the recent short squeezes have helped highlight flaws in the existing hedge fund business model.

"I'd say that one of the hardest skills in all of investing is the short side and I think that's part of the big misnomer with hedge funds," Hammond said.

Funds take on tremendous amounts of risk on behalf of clients with a fantastic asymmetric risk reward for the manager.

"It's heads, you get 20% of a very large number," Hammond said, describing the manager's approach. "Tails, it blows up and you don't lose anything, so the economic incentive structure doesn't appropriately incentivize people and obviously, that's why you've seen these [outflows]."

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Bill Ackman's pitch to buy 10% of Universal Music Group (UMG) for about $4 billion has been accepted, the billionaire investor announced on Sunday. He also confirmed his intention to pursue two more multibillion-dollar deals, paving the way for fresh intrigue after seven months of speculation about his original target.

Ackman's Pershing Square Tontine Holdings (PSTH), a special-purpose acquisition company (SPAC), will purchase the minority stake in Drake and Billie Eilish's record label from its parent company, Vivendi. The French media conglomerate intends to list UMG on the Euronext Amsterdam Exchange in September, and PSTH shareholders are set to receive their shares in the music group before the year ends.

"When the transaction is completed, our shareholders will directly own 10% of the common stock of an independent, publicly traded, large capitalization, extraordinary business with a superb management team," Ackman and his team wrote in a presentation about the deal.

Unusually, PSTH will remain a public company after the transaction, and seek to deploy as much as $2.9 billion on another business combination. Ackman and his team are already searching for a compelling target, they said.

PSTH shareholders are set to receive UMG shares, continue to own PSTH shares, and will also be handed warrants to buy shares of a special-purpose acquisition rights company (SPARC) for $20 a pop. The SPARC, which hasn't been approved by regulators yet, could be armed with up to $10.6 billion to pursue a separate business combination.

Ackman's SPARC is similar to a SPAC, but it doesn't let investors buy its shares until it has struck a deal. As a result, it doesn't tie up their capital while it searches for a business combination, and also escapes the pressure of having to close a transaction within two years.

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Jim Simons' Renaissance Technologies has suffered an $11 billion outflow of client funds in seven months as investors have tired of its poor performance, Bloomberg reported, citing investor documents.

Simons, a former NSA codebreaker and MIT math professor, founded RenTech in 1982 and built it into one of the world's largest and most successful quantitative hedge funds. While the internal Medallion Fund has continued to shine, RenTech's three public funds delivered their worst performance ever in 2020, and trailed the broader market in the first five months of this year, Bloomberg said.

The weak showing spurred RenTech clients to withdraw a net $10.1 billion in the four months to April 30, ask to redeem $700 million in May, and request to pull out another $400 million this month, Bloomberg said. The exodus of cash has slashed the largest public fund's assets by more than 25% since last June, and cut the other two funds' assets by 40% to 50% each, the news outlet added.

RenTech's bosses admitted to clients in December that the three funds were underhedged when the pandemic struck last spring, and overhedged when the stock market bounced back in the second quarter of 2020. They expressed regret about the disappointing returns at the time, but defended themselves by saying that even the best investments perform poorly sometimes.

Simons resigned as RenTech's chairman in January, but still sits on the firm's board. He closed the Medallion fund to outside money in 2005 after realizing too much capital hampered its ability to outperform.

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Insider has been tracking Wall Street hiring and talking with recruiters and insiders about the biggest trends.

Top healthcare bankers are in high demand, with one recruiter describing search requests from clients as being "extremely, extremely active." Banks are racing to lateral hire analysts. And credit traders are locking in guaranteed pay at new gigs after putting up a big year. 

From junior investment banking talent to senior dealmakers and traders, here are the spaces to watch — and who's been on the move recently. 

Wall Street banks can't get enough junior talent

Investment banks are struggling with massive workloads and a shortage of junior bankers.  Now, banks are battling for lateral hires and senior bankers are having to step in to do work less experienced bankers normally handle.

Kim Freehill, a senior partner at New York-based recruiting firm FSJ Partners, which works on behalf of middle-market investment banks, told Insider she's never been so swamped with inquiries from clients. 

Banks are desperate to score more analysts and associates to help with mountains of deal work. 

"My workload is enormous right now," Freehill said, adding that she's been pulling 12-hour days screening candidates by phone.

"I don't know who's left," she said. "Three out of five calls I make, they've already been contacted."

Read the full story here: 

Investment banking's labor crunch: A junior banker shortage is forcing rainmakers to do grunt work and firms are lowering the bar for new hires

Credit trader hiring is red hot

Credit was one of the strongest performers across trading desks last year, as intervention from the Federal Reserve, wide movements in spreads, and an onslaught of debt issuance spurred client activity. 

Traders have plenty of motivation to entertain offers now. Even if they received great compensation this year, performance will almost certainly drop compared with a frothy 2020. So rather than wait around for a smaller bonus, some see the logic of locking in a juicy guarantee while demand is hot, according to senior headhunters. 

"They had ridiculously high revenue last year, and it's not going to match this year," one senior fixed-income recruiter said. "They're capitalizing on big comp numbers."

Read the full story here: 

Banks are paying up for credit traders in a wild poaching war. Search our database of 45 names and the firms doing the most hiring.

Healthcare bankers are in high demand

Charles Anderson, who leads Heidrick & Struggles' corporate- and investment-banking recruiting business, in May described the demand from clients for healthcare searches as being "extremely, extremely active."

Much of the momentum has been driven by demand for specialists who can help companies at the intersection of healthcare and other tech verticals, such as payment technology.

Read the full story here: 

Healthcare bankers are in high demand in an 'extremely, extremely active' hiring market. Here's a rundown of 18 dealmaker moves.

Credit Suisse traders and bankers are jumping ship - here's where they're going

Nearly 50 senior employees have parted ways with Credit Suisse during recent months, according to hiring announcements by other banks, a review of reported exits, and people familiar with the moves. 

Read the full story here: 

Credit Suisse has lost more than 45 execs, bankers, and traders after a string of scandals. Here's a list of names and where they're heading.

And check out our recruiter databases for the top headhunters across fintech, banking, trading, private equity, and more:

• Use our searchable database to find more than 350 Wall Street headhunters for private equity, investment banking, and hedge fund jobs
• 10 top recruiters helping fintechs like Robinhood, Chime, and Square poach top executives and staff up teams

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Billionaire investor Ray Dalio is much more worried about how the Federal Reserve will taper its stimulus efforts than he is about rising inflation, he said in a Bloomberg interview at the Qatar Economic Forum this week.

Dalio, the cofounder and investment co-chief at Bridgewater Associates, acknowledged that demand is likely to surge as the pandemic threat recedes, boosting prices significantly. However, the bigger problem in his view is how the Fed will sell the government bonds it has amassed when their real returns are negative, buyers' portfolios are already overweighted towards US bonds, and other markets are offering better yields.

"It's likely that the Federal Reserve will not be able to taper or cut back, and might actually have to increase [stimulus] to prevent interest rates from going up," he told Bloomberg.

Skittish investors could also make it tricky for the Fed to temper its support as well, Dalio said. "You saw the reaction in the markets when the Fed just even hinted at tightening," he said. "I don't think they can tighten a lot without having a big negative effect."

The hedge fund manager also expressed concern about the huge volume of liquidity in markets being fueled by government stimulus and near-zero rates. He argued it was creating asset bubbles and threatening to lift inflation and weaken the dollar.

"There's a lot of money being thrown around," he said, giving the example of interest-only mortgages in the US.

As a result, the Bridgewater chief recognizes the need to slow the US economy, but warned that won't be as simple as it sounds.

"It's easy to say that the Fed should tighten, and I think that they should put on the brakes a little bit," he said. Yet when markets and the economy are this sensitive, the "slightest touching on those brakes has the effect of [spooking] markets because of where they're priced, and also passing through to the economy," he added.

The Fed is also operating in a politically charged environment in which the wealth gap and other issues are front and center, Dalio said. That makes it a tricky balancing act to not overheat the economy, foster asset bubbles, or drive up inflation, while not devaluing the dollar, terrifying investors, or running into political trouble either, he added.

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After a rousing win against oil giant Exxon Mobil, small ESG-driven activist investor Engine No. 1 took its newfound momentum and attention and launched an index-investing ETF. It's a big departure from the exclusive, high-fee hedge fund club.

The goal for the young manager, which is run by Andor Capital Management cofounder Chris James, is to spread its philosophy on investing to as many people as possible.

Activist hedge funds and passive, low-fee products like index exchange-traded funds don't typically have a lot in common, but the firm sees the ETF launch as the next step in its overall goal of transforming the investment-management industry.

"We are taking the tools of activism and applying them in new ways," Michael O'Leary, a managing director at Engine No. 1, told Insider.

"It's very different from activism campaigns in the past."

Activist investors usually build up stakes and then agitate for companies to make changes to boost their stock prices or press for actions like spinning off certain businesses. But Engine No. 1's belief is that "environmental issues are economic issues," O'Leary said. In turn, it's betting measures to address environmental issues can also help boost company performance. 

But the environmentally-minded manager is tiny compared to the most feared activists, like Elliott or Starboard Value. In the Exxon battle, Engine No. 1 received support from massive asset manager BlackRock and large pensions that had shares in the company. Together, the shareholder votes were enough to elect three new members to Exxon's board in a stunning upset.

O'Leary said this type of support is critical, noting that "there has to be" a running dialogue with the asset management giants to get anything done.

"The power is always going to derive from the strength of our ideas, the strength of our facts, and the ability to get other investors to go along as well," he said.

"Other investors are ultimately key to our success."

The firm hopes its influence rubs off on other passive asset managers, which manage trillions for investors and often have sizable stakes in a given company. Engine No. 1's new ETF, which launched with $100 million, will be invested in the same top 500 companies that the big firms like Vanguard, State Street, and BlackRock are passively invested in.

The difference will be that the Engine No. 1 will be voting and campaigning for changes it sees fit instead of mindlessly riding along with whatever the company recommends.

"Rather than excluding companies that need to change, VOTE works to change them," the firm's website for its ETF, which trades under the ticker VOTE, reads. 

The firm's jump into index investing won't force companies to make radical changes overnight, but it may serve as a wake-up call for other index players that have tagged along with the stock market's impressive rise over the last decade with minimal interaction with the companies.

"Our approach is to come at index investing the way you'd come at activist hedge-fund investing," O'Leary said.

"A huge amount of power is in passive products."

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$65 billion hedge fund Tiger Global has been on a startup investing spree this year, averaging more than one venture-style investment per business day in 2021, Insider reported.

As companies choose to stay private for longer periods of time and the number of public companies in the market has declined, hedge funds like Tiger Global and D1 Capital Partners are turning to startups as a source of differentiated returns. Tiger Global has won deals away from some of the most prominent venture capital firms, participating in 110 startup financings this year already compared to its next-fastest competitors in startup funding Andreessen Horowitz (101 investments) and Accel (87 investments), according to Pitchbook's estimates.

And its strategy is largely paying off. The firm, headed by founder Chase Coleman, saw a $1 billion windfall on its 2014 investment in Chinese ride-hailing startup Didi Global after the company went public on June 30th, Bloomberg reported.  

Another Tiger-backed startup, Uruguayan payment company DLocal, made a successful public debut on June 2nd at $21 per share, well above its intended pricing range of $16-18 per share.

Website creation platform Squarespace, meanwhile, went public through a direct listing on May 19th, pricing below its expected range and with shares plummeting 13% on opening day. Tiger had participated in a $300 million funding round in March with various other investors. 

According to reports in The Information and the Financial Times, Tiger Global is known in the venture world for approaching startups before they begin fundraising and offering to pay high premiums. The hedge fund could now be set to realize more gains from its strategy as some of its key portfolio companies look to go public.

We outlined the companies Tiger Global has funded in 2021 that have either filed or discussed plans to go public this year below.

Filed:

Blend Labs

Blend Labs, a mortgage-tech company, made the IPO prospectus it filed with the Securities and Exchange Commission public on June 21. The company is preliminarily aiming to raise $100 million in the offering, to be underwritten by Goldman Sachs, Allen & Co, and Wells Fargo Securities, though the company has not yet shared its planned number of shares and price range.

The digital lending platform has raised $665 million to date, including $300 million in Series G funding it closed from Tiger Global and Coatue on January 13, according to Crunchbase. The round, which valued the company at $3.3 billion, nearly doubled its valuation from its last funding round five months prior.  Tiger Global owns about 6% of the company before the IPO, according to the prospectus. 

Zomato 

One of Tiger Global's many bets in India is slated to go public in July on the Indian stock exchanges NSE and BSE, per the Economic Times. Indian food delivery group Zomato has filed for a $1.1 billion initial public offering, which would make Zomato's IPO the biggest in India so far this year, per Bloomberg.

The company, which counts China's Ant Financial as a large shareholder, was last valued at $5.4 billion after a $250 million funding round co-led by Tiger Global and Kora in February. Tiger Global also led its previous $160 million funding round in September 2020 alongside Temasek Holdings. Kotak Investment Banking, Morgan Stanley, Credit Suisse Group AG, BofA Securities, and Citigroup Inc. will serve as arrangers on the IPO. 

Expected:

Dingdong Maicai

Chinese fresh-food grocery app Dingdong Maicai, plans to go public in an offering underwritten by Morgan Stanley, BofA Securities, and Credit Suisse. The company plans to raise $94.4 million in its US IPO this year, a sum it revised downward in a June 28th filing by over 70% from its original target of $357 million.

Dingdoing Maicai last raised $30 million in a so-called "D-plus" funding round led by SoftBank on May 11, said its advisor, Cygnus Equity. The round came on the heels of a $700 million Series D financing led by DST Global and Coatue, with participation from existing investors including Tiger Global and Sequoia Capital. 

Dreamsports

Dreamsports, the parent company of Indian fantasy sports platform Dream11, is reportedly in early talks with investment banks for a US public listing by early 2022, per the Economic Times in April. The 13-year-old startup is considering merging with a SPAC for its public market debut.

It raised $400 million at a $5 billion valuation in March 2021 led by TCV, D1 Capital Partners, and Falcon Edge, with participation from existing investors including Tiger Global and TPG Growth. Dream11's valuation after the round brought it to the league of India's most valued unicorns like OYO ($9 billion) and Zomato ($5 billion).

Gupshup

Indian customer engagement messaging platform Gupshup raised $100 million from Tiger Global on April 8 at a $1.4 billion valuation for the company. The round will be followed by a second close "with significant additional funds raised from more investors,"per the press release.

The funding news comes after Gupshup CEO Beerud Sheth told MergerMarket in November 2020 that it might initiate an IPO process over the next 12 months or pursue a deal with a private equity buyer.

Patreon

Patreon, a platform facilitating payments from fans to support content creators, is considering going public as soon as this year, a source familiar with the matter told The Information.  The startup has met with both banks and SPACs, though according to the source, a SPAC merger is not its preferred route to the public markets.

The company's valuation tripled to $4 billion after its last funding round in April, in which it raised $155 million led by new investor Tiger Global with participation from existing investors including Wellington Management and Lone Pine Capital.

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Billionaire Philippe Laffont's Coatue Management is underperforming for the year so far despite a solid June.  

The $48 billion manager posted returns of 4.2% in June, boosting its performance for the first half of 2021 to 5.8%, sources familiar with the Tiger Cub tell Insider.

The firm declined to comment.

The figures trail the S&P 500, which was up more than 14% through the first half of the year. The average hedge fund, according to Hedge Fund Research, was up nearly 10% through the end of the May. The research firm has not yet released its mid-year averages. 

Coatue's performance in 2021 so far has not replicated its blockbuster 2020. The firm lost 10% in March last year when the coronavirus shut down the global economy, but quickly recovered making 65% in its flagship fund. Separately, the firm's nascent quant fund had to return outside capital.

Coatue, like other Tiger Cubs, has made big bets in the private markets, recently leading a funding round for solar software unicorn Aurora Solar, but has cut back on its tech exposure in its public equities portfolio, according to an earlier piece from Bloomberg. 

Regulatory filings from May show Coatue sold most of its stake in Peloton, and cut its stake in Zoom and cybersecurity firm Crowdstrike in half. As of the end of the first quarter, the firm's biggest positions are in DoorDash, Snowflake, Disney, Tesla, and SunRun. 

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The retail-trading frenzy around the bankrupt car-rental company Hertz last summer might have made a few hedge-fund managers laugh, but the January drama starring Reddit traders, GameStop, and big-name funds showed the $3 trillion-plus industry how serious such trading could be.

In response to the coordinated short squeeze on Melvin Capital and other hedge funds, several managers have tweaked how they do things, including Melvin and Dan Sundheim's D1 Capital, both of which suffered big losses in January. The managers have changed how they short and what vehicles they use to take bets against public companies.

At Calixto Global Investors in Coral Gables, Florida, there is a strong appreciation for what the Reddit crowd can do. 

"The fact of the matter is we have to be aware of the most popular meme stocks now," said Eduardo Costa, who founded Calixto in 2014 with $25 million and has since grown the firm to more than $300 million. 

Costa said the WallStreetBets crowd was "a new force that's happening in the market" and had forced him to change the way he shorts companies, mostly smaller positions to make sure he doesn't suffer the same fate as Melvin — which Calixto came close to. 

"We were short some of these things and covered quickly at prices we thought were ridiculous — and then they doubled and tripled in price," he said, without naming specific tickers. The decision to take smaller short positions ensures that a single wrong bet doesn't lead to a catastrophic loss.

It's another example of the new respect being given to what professional investors used to refer as dumb money. Hedge funds are tracking conversations on forums like WallStreetBets the same way they track data on sales and shipping patterns. Short sellers believe the important function they serve in the markets will be eliminated by day traders who want to send every name to the moon.

Calixto can certainly appreciate the frustrations of short sellers. Costa said his shop viewed shorting as a way to make profits, not just hedge long bets.

Costa said the fund had so far found success in geographies outside the US, like Japan and China, and invested mostly in consumer and technology, media, and telecom sectors.

A person familiar with the firm's results told Insider the fund was up 3.9% through June after returning 3.2% to investors last month. Costa said the manager used the MSCI World Index as a benchmark, which has returned nearly 13% through June. In 2020, the fund returned 47%, the source told Insider.

Costa said he hoped to grow the fund  — which has a five-person investing team, including himself — to be between $1 billion and $2 billion. It has expanded recently into private investing, with a deal involving a Chinese internet company that he declined to name.

Private investing has spread across the hedge-fund space, most notably among the disciples of Tiger Management founder Julian Robertson. Costa is a part of the Tiger family, having worked as an analyst for former Tiger Management analyst Chris Shumway's eponymous firm and as the director of research for John Thaler's JAT Capital.

Costa is hyperfocused on fundamentals as companies come out of the pandemic, especially in tech companies whose "fundamentals were accelerated," he said. But the advent of retail traders' power has warped many of the long-standing rules investors like Costa have lived by.

"We're not going to do well in a situation where the outcome has no bearings on the fundamentals of the business," he said.

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Fresh record highs for the S&P 500 aren't enough to assuage Bank of America Securities clients, who sold US stocks for the seventh straight week heading into Independence Day.

Bank of America Securities clients edged out of individual stocks by a net $200 million but bought ETFs for the ninth consecutive week, according to a July 7 client note from a team of Bank of America strategists led by Jill Carey Hall. That's in line with a multi-year shift to passive investing from active management, Hall wrote.

Hedge funds and retail clients are on the run, ditching stocks for the second week in a row to the tune of $1.4 billion and $300 million last week, respectively, the note read. Conversely, institutional clients rode the rally for the third straight week and were net buyers of $500 billion.

Growth's impressive rally is a "head-fake"

Growth stocks have rocketed higher in recent weeks after a rocky start to the year as evidence builds that hot inflation, reflected by surging commodity prices, is transitory and will fade when the US economy fully reopens. High inflation makes stocks' future earnings less valuable.

But BofA Securities clients took profits in the consumer discretionary, communication services, and technology sectors last week, the strategists wrote, after respective runs of 6.7%, 3.7%, and 8% in the last month. The consumer discretionary and communication services sectors had the largest outflows in the first half of 2021, while communication services and technology have seen "record or near-record sales over the last four weeks," strategists noted.

The contrarian move comes as bond yields — which move inversely to bond prices and tend to rise with inflation — have collapsed. The 10-year US Treasury note yield is down 15% in the last month to 1.3%. In theory, falling yields reflect weaker inflation and should lift growth stocks.

But investors seem to be increasingly anxious about the strength of the global recovery as COVID-19 cases persist, driven by the new delta variant. Investors expect risky assets like growth stocks will take a breather amid the uncertainty after an outstanding June run.

BofA clients aren't simply keeping money on the sidelines, however. Five sectors saw net inflows last week, according to the Bank of America strategiests: consumer staples, financials, health care, materials, and utilities. 

Bank of America believes its clients are wise to rotate out of growth stocks and into economically sensitive and defensive sectors, the strategists wrote, adding that value will regain the momentum it found early in the year as funds continue to position for a US economic recovery.

"While fund positioning in cyclicals has risen off last year's levels, it hasn't risen by much, and funds remain tilted toward growth vs. value and anti-inflation vs. pro-inflation stocks," BofA strategists wrote. "We view growth's recent outperformance as a head-fake and prefer value (energy) and quality (financials)."

Investors can follow BofA clients and add exposure to these five sectors with the following ETFs: Consumer Staples Select Sector SPDR Fund (XLP), Financial Select Sector SPDR Fund (XLF), Health Care Select Sector SPDR Fund (XLV), Materials Select Sector SPDR Fund (XLB), and Utilities Select Sector SPDR Fund (XLU).

Economically sensitive sectors like energy and real estate were the only sectors to see net inflows in the first half of the year, while financials and materials saw neutral flows in that span. The healthcare sector has "solid fundamentals and attractive valuations," the note read, though it was one of the most-sold sectors in the first half of 2021.

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Gabe Plotkin's Melvin Capital Management, targeted by the Reddit army of day traders for its bearish GameStop bets, ended the first half of the year with a 46% loss, Bloomberg reported. 

The New York-based hedge fund, which suffered a stunning 53% loss in January from the Reddit-trader short squeeze, gained 1% in June. But it is still struggling to recover, Bloomberg said in the Thursday report, citing sources familiar with the matter.

Melvin Capital, founded by star portfolio manager Plotkin, did manage to stage something of a comeback with a 22% gain in February. But its overall first-quarter loss stood at 49%, Insider understands.

The hedge fund got torched by the Reddit army alongside other high-profile firms that had big bets against GameStop when day traders banded together to send shares of the gaming retailer skyrocketing. When the price of a stock rises, short sellers must typically cover their positions by buying shares at that higher price. 

Melvin Capital lost a chunk of its assets in the trading frenzy, ending January with $8 billion in assets, down from $12.5 billion at the start of the year. Its assets had risen to $11 billion as of June 1, the Financial Times and Bloomberg reported.

After the January hit, the fund has somewhat recovered. It is up 18% for the five months between February and June, Insider understands. It gained 5.4% in the second quarter.

The hedge fund is understood to be taking smaller-sized positions to limit its exposure to single companies. It exited its public short positions against GameStop, AMC and other stocks in the first quarter, but may have still held non-public, more traditional short positions.

Founder Gabe Plotkin has also asked a team of data scientists to comb through social media and day-trader forums for stock names of interest to retail traders, Bloomberg reported.

A spokesperson for Melvin Capital declined to comment.

Read More: Prominent market bear Albert Edwards warns that investors who prematurely bet on higher inflation are set up for further losses — and lays out the pathway to record-low bond yields

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For the average hedge fund, it was the best first half in more than two decades, and Shawn Matthews's Hondius Capital Management was better than average.

The Stamford-based macro manager is up more than 17% through the end of June, sources tell Insider, and runs more than $200 million. The average fund is up roughly 10% for the year, according to Hedge Fund Research, which said that in a recent release that it was the best first half for hedge funds since 1999. The S&P 500 returned just under 10% through the first six months of 2021.

The manager's returns were powered by trades made around commodities and rates, a source says. Hondius is named after 17th century cartographer Jodocus Hondius, a nod to the firm's goal to "accurately map out the world," according to the manager's website.

The firm declined to comment. 

Matthews founded the firm in 2o19 after he ran Cantor Fitzgerald as CEO from 2009 to 2018. The firm also launched a $250 million SPAC this year with the goal of purchasing a private fintech company. 

Macro managers like Hondius received serious attention from allocators last year after the globally-focused funds performed well during the market chaos in the spring of 2020. Big names like Brevan Howard began fundraising again amid the interest, and new funds to come in the space include former Bank of America executive Julien Bahurel's Como Capital. 

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