The wild trade in GameStop GME-N stock in early 2021 created one of the biggest paydays in history for an executive at a Canadian public company.
Richard Mashaal, vice president of little-known investment firm Senvest Capital Inc., headquartered in Montreal, SEC-T received just under $152 million last year. The compensation included a $53 million cash bonus and an $82 million reduction in trading profits, largely due to a hugely successful bet at GameStop.
Although a small number of Canadian executives have already earned more than $100 million in a year, their compensation packages were largely made up of stock awards, the value of which can diminish over time. Senvest’s annual compensation disclosures show that Mr. Mashaal’s compensation in 2021, by contrast, was all cash.
The disclosures also offer a window into the outsized rewards on Wall Street when hedge funds make big bets that turn out much better than expected.
A handful of hedge funds bet big on GameStop ahead of its wild ride
Victor Mashaal, Richard’s father and chairman and president of Senvest, started the company in 1968 as the Canadian distributor of Sensormatic electronic monitoring systems. By the 1990s, she had abandoned this activity in favor of real estate and equity investment.
Today, she makes investments and acts as an advisor to three hedge funds. Stocks listed on the TSX rarely trade more than a few hundred shares per day. Richard Mashaal runs Senvest Management LLC. offices on Madison Avenue in New York. Together, he and Victor own about 56% of Senvest Capital, a stake worth about $485 million at Friday’s closing price.
In its filings with Canadian and US regulators, Senvest said it bought a stake in GameStop in late 2020 as one of its typical value investments. (The company’s external communications agency declined to provide comment beyond the filings.)
Senvest believed that a new board and management team that joined GameStop in 2019 was bringing about significant change, and that an activist investor who had recently advertised a position at the game retailer could be a catalyst for further more. And the company believed analysts were underestimating the potential profits GameStop could generate as game console makers release new models.
Senvest acknowledged in his filings that he was also fully aware that GameStop was probably the most short-selling stock in all of the United States. Short sellers borrow shares of a stock, sell them, and hope to profit when the stock price drops by buying them back at the lower value and repaying the stock-based loans.
But when a short stock rises sharply, it creates “squeeze” because short sellers often need to quickly buy back stocks at higher prices to “hedge” their loans.
“In all of our careers, we had never seen such a level of interest,” Senvest explained in his documents. “From what we could tell, the short thesis was that all video games would be distributed digitally and GameStop would go bankrupt. Our research indicated that GameStop was at little risk of bankruptcy.
A potential short squeeze “created a sizable chance of a huge upside move,” Senvest said.
This is exactly what happened to GameStop and Senvest.
Senvest’s disclosures indicate that he owned 3.6 million shares, or 5.54% of GameStop, as of October 7, 2020, and bought “the bulk” of his investment in the fourth quarter of 2020. During those first seven days of October, GameStop shares were trading between US$9.10 and US$10.25.
Senvest bought more than 1.4 million additional shares by the end of 2020. It did not disclose purchase prices, but GameStop traded widely between US$10 and US$20 during this time.
Around the same time, individual investors on Wallstreetbets, an online community hosted by Reddit, began sharing memes that encouraged others to buy stocks heavily short. The campaign turned into what appeared to be a crusade to punish short sellers by rapidly increasing the value of those stocks. During the first few months of 2021, “meme stocks,” including the Canadian BlackBerry, rose rapidly and often fell just as hard.
“We did not anticipate the unusual short squeeze catalyst that occurred in GameStop beginning January 25,” Senvest wrote in his docs. “Reddit’s ‘Wallstreetbets’ participants effectively outsourced the short squeeze that caused the coil spring to spring.”
Senvest did not disclose exact sale prices, but said it “cut” its GameStop position on Friday, January 22, a day when the stock traded between US$42.32 and US$76.76.
Senvest started selling again in the early hours of pre-marketing on Monday January 25 and “extracted about half of the position that day”. At that time, GameStop was trading between US$61.13 and US$159.18. This “provided us with an extraordinary gain from which we had the opportunity to ‘play with house money’ and see where the stock might go,” the company said.
At the top.
On Jan. 26, a tweet from Chamath Palihapitiy, whom Senvest described in his filings as a “social media darling,” sent the stock price higher. GameStop was trading between US$80.20 and US$150.00 that day. Senvest said he was “selling more”.
“Finally, after the market closed that same Tuesday, the titan of all business social media, Elon Musk, who has a particular contempt for short sellers whom he has regularly fought publicly, tweeted a single word – ‘Gamestonk!’ – which sent GameStop investors into a frenzy,” Senvest wrote. “We thought things couldn’t get any better than this in terms of immediate futures trading mania, and as a result, we sold our GameStop shares remaining in post-market trading hours and through Wednesday, Jan. 28. regular trading.”
GameStop traded between US$249.00 and US$483.00 during this period.
Senvest said the GameStop investment provided “more than 35%” of the company’s $2.42 billion gain in 2021, or at least an $848 million pretax gain on a single position, owned for about four months. The Senvest Master Fund returned 66.9% for the first quarter of 2021 and 86.2% for the year.
The company, which reported net income of $212 million in 2020 — only its second year at over $200 million, according to S&P Global Market Intelligence — posted $733 million in profit for 2021.
While GameStop’s impact on Senvest’s earnings had been known for some time, its effect on the company’s compensation wasn’t revealed until its annual shareholders meeting last month.
Senvest Capital has a compensation plan that sets aside 3.5% of the company’s pre-tax profits as bonuses. And that adds another 3.5% if the company’s investment portfolio beats a benchmark by a wide enough margin – which it did easily in 2021.
This created a bonus pool of $59 million, of which Richard Mashaal received $53 million. (Victor Mashaal received $5.6 million and a third person received the remaining $400,000.)
In addition, an entity owned by Mr. Mashaal receives management fees from three funds in which Senvest has invested. His share of that was $15.67 million.
And investors in Senvest funds pay 20% of their profits to the managers. Mr. Mashaal received $82.64 million in profit sharing.
Senvest Capital, the publicly traded company, said it did not include the $82.64 million portion of Mr Mashaal’s compensation because it is paid directly to him by investors in the funds. Prior to 2021, however, Senvest included profit sharing money in its annual compensation disclosure totals.
Including this profit sharing, Senvest reported total compensation for Mr. Mashaal of $31.67 million in 2020, $7.59 million in 2019 and $6.22 million in 2018.
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