The two market crises that dominated the first quarter of 2021 offer important lessons about risk and changing market dynamics, even if they don't prompt changes in investments.
Both the high-volume retail trading in GameStop Corp. shares and other meme stocks in January and the leverage-induced meltdown of family office Archegos Capital Management LP in late March offer lessons about risk management for institutional and other investors, sources said.
"You need to pay attention to these kinds of issues because of implications on market structure, but in cases like these, you don't need to spend six hours down a rabbit hole researching them," said Ian Toner, San Francisco-based chief investment officer of investment consultant Verus Advisory Inc.
Consultants said for the most part they haven't fielded many questions from clients about the two market events. But several consulting firms and hedge funds-of-funds managers said while the Archegos debacle was a one-off event that didn't affect many other market participants, the way that retail investors en masse engineered a short squeeze on stocks some hedge funds held, including GameStop, is of more concern going forward.
"GameStop was less an anomaly and more about a change in market behavior. It's something to watch in the future," said Craig G. Bergstrom, managing partner and CIO of alternatives manager Corbin Capital Partners LP, New York.
"Archegos was about the dangers of leverage and GameStop was a reminder about the dangers of shorting. The lessons learned from Game- Stop were a reminder of the potential of unlimited loss, the new impact of social media, reasons to beware disclosure of short positions and crowded short positions," he added.
Corbin Capital managed $8.1 billion as of March 31, $5.5 billion of which was in hedge funds-of-funds strategies.