Dan Sundheim’s GameStop Short Pain Prepared Him for 2025 Turmoil
(Bloomberg) — The short squeeze on GameStop Corp., which cost Dan Sundheim’s firm $4 billion in a single month in 2021, put him in a state of shock, so he was prepared for market turmoil in March to again encourage hedge funds to unwind bets.
Sundheim’s D1 Capital Partners stock book rose 28% through November of this year, according to a person familiar with the matter who asked not to be identified because the figures are confidential.
In a letter to investors, Sundheim explained how the firm is positioning itself ahead of the hedge fund industry’s biggest hedge since 2021. That year, retail investors invested in GameStop and AMC Entertainment Holdings Inc. and BlackBerry Ltd. They badly squeezed hedge funds that were shorting other meme stocks like .
“In our earlier years, these conditions (underperformance in the U.S. and technology, hedge fund gross reductions, crowd equity unwinding, and retail-driven short squeezes) would likely have led to much more volatile outcomes for our public portfolio,” Sundheim wrote in his September investor letter. But this time we were more prepared.”
The letter stated that the firm, which manages $25 billion, started the year with its highest ever net exposure to non-US companies. As investors grew uneasy in March and April over US tariffs and war in the Middle East, they focused on bets with long-term potential.
Individual traders’ residential real estate company Opendoor Technologies Inc. and retailer Kohl’s Corp. D1 was also in a good position in July, when highly shorted companies including companies increased their stock prices. Sundheim wrote that D1 has already avoided taking a hit because it has diversified its short book, increased risk monitoring and limited its exposure to such plays.
“This enabled us to maintain our position despite the squeeze in the following months,” he wrote.
D1’s stock-picking portfolio was already up 23% this year through August, outpacing most of its peers. According to the letter, the long book outperformed the MSCI World Index by 20% during this period, while the short book outperformed the index by 7% before fees.
D1 called transformational bets on the stock’s five biggest winners; This means they are making changes to management or products, or taking advantage of an emerging trend like artificial intelligence. These include Siemens Energy AG, Hanwha Aerospace Co., Rolls-Royce Holdings Plc, AppLovin Corp. and Philip Morris International Inc. It is located.
Four of the stock book’s five biggest losers were short bets.
Sundheim, an AI bull, expects the technology to create an ideal stock-picking environment. D1 believes that to date, AI has only had a significant impact on a small number of publicly traded stocks, and particularly over the long term.
“We predict short opportunities will become even more plentiful,” he wrote.
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