Citadel LLC, a major Hedge fund, has always been in talks, mostly for heavily indulging in short selling. The firm released its financial statements for the year 2021 recently and it led to a Twitter trend. There were thousands od tweets on the matter that caught everyone’s attention. The company’s liabilities have considerably increased, especially, in the past two years. This was a matter of concern for a whole lot of investors.
Involvement in Short Selling
Citadel’s Statement of Financial Condition data shows that the worth of securities sold by the company for the intention of repurchasing them but hasn’t repurchased has increased manifold. In the year 2019, such securities were worth $25.2 billion. These securities can also be termed has short sale investments. This means that these numbers have a great significance of the short selling of stocks in the market which lead to sky-high prices today but might drop to the lowest level tomorrow.
Short selling is a big threat to investors since the stock prices become much more volatile than before. Moreover, many people lose their money in the process. However, big hedge funds might take advantage of it and strategize the purchase and sell strategy of the stock. This is why the financial statements snapshot was trending as the investments by the firm in shorted stocks has increased over time.
In the year 2020, the securities sold for repurchasing but wasn’t repurchased amounted to $57.5 billion. This amount was more than double of that of the year 2019. This development indicates that the firm indulged into short selling heavily that year. The Covid-19 pandemic might be a reason for it. Moreover, doubling the short sale investments would have considerably affected the stock market trends.
Last year, the aforementioned variety of securities held by the company amounted to $65.7 billion. The figure was considerably higher than that of 2020. Moreover, if metrics of the year 2019 are considered then its short sale investments rose by more than $40 million during the year. Moreover, heavy involvement in short selling has led the Department of Justice (DOJ) initiate a probe into Citadel.
Liquid Cash Held
Further, the liquid cash held by Citadel last year was $546 million. The amount is much less considering the worth of the hedge fund. Moreover, the regular transactions made by Citadel also suggest that it should hold more liquid cash. Moreover, the amount of liquid cash held hasn’t increased considerably.
In the year 2019, 2020, and 2021, the firm held liquid cash of $438 million, $523 million, and $546 million, respectively. This shows an increase of $108 million in two years, which is much lesser in magnitude compared to the short sale securities metrics. Citadel has recently trimmed its stake in the major hedge fund, Melvin Capital. The act may have been in order to extract its investments back to make the assets and liabilities statistics better.
DOJ probe into Citadel
The DOJ has initiated an investigation into Citadel with concerns of swinging price actions of stocks for their profit. The act of ‘spoofing’ comes here which keeps the price fluctuating. In addition to Citadel, other alliances of Morgan Stanley on Wall Street also faced the probe and investors of short squeezed stocks were delighted since they expected the investigation to be fruitful for them. Moreover, they expected the ‘short squeeze’ of a stock to end and the ‘long squeeze’ to start.
According to information from the probe, investigators are extremely keen to know if any money managers put well-timed wagers preceding block trades which have the potential to push prices down. Moreover, if the case is so, it’s uncertain who, if any person is involved, could be charged of disclosing or operating on any significant non-public information.
Citadel trims stake in Melvin Capital
Citadel LLC reduced its $2 billion stake in Melvin Capital Management, Wall Street Journal reported recently. The move came just after the hedge fund struggled to rebound out of a relatively close collapse prompted by early-year rises in GameStop Corp. and some other “meme stocks.” Citadel sought to retrieve half the investment it and its associates still possess in Melvin’s hedge fund in late January. Moreover, post trimming their stake late last year, Melvin stacked up double-digit deficits again for the second time in January straight, according to sources familiar with the matter.
According to the sources, the most recent withdrawal application will be cashed out by the March end. During January 2021, Citadel and also its affiliates put in $2 billion, with $750 million coming by Steven A. Cohen’s Point72 Asset Management, in return for a share of Melvin’s charges during the coming three years.