Melvin Capital to close after heavy losses in meme stocks and market crash

May 18 (Reuters) – Melvin Capital, once one of Wall Street’s most successful hedge funds that later lost billions in the saga of meme stocks, is closing after it was hit again by the plunge in the market this year.

Gabe Plotkin, widely regarded as one of the best traders in the industry after posting years of double-digit returns, told investors the last 17 months have been “an incredibly difficult time”.

Plotkin had been trying to turn the company around after being caught earlier in 2021 betting against retail favorite GameStop (GME.N) and after being battered again by falling markets this year.

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“The appropriate next step is to liquidate the Funds by liquidating the Funds’ assets and accounts in full and returning cash to all investors,” Plotkin wrote in a letter reviewed by Reuters on Wednesday.

Melvin Capital had $7.8 billion in assets at the end of April. The fund lost 23% in the first four months of 2022, a person familiar with the fund’s finances said.

This year’s losses come on top of heavy losses in 2021, when Melvin Capital ended the year down 39%. The firm bet that GameStop shares would fall, but was defeated when retail investors took the other side and caused the shares to rise.

The firm had $12.5 billion in assets as of early 2021.

In the letter, Plotkin said he had already raised a substantial amount of cash and reduced the funds’ exposure.

A spokesman for Plotkin declined to comment.

For a while, powerful investors continued to back Melvin with Citadel LLC and Point72 Asset Management, where Plotkin had once worked, plowing billions in emergency cash in early 2021 amid meme stock losses.

Earlier this year, Plotkin told investors he wanted to reorganize and reduce assets to $5bn from about $8.7bn and charge them lower fees, for a while. Investors reacted strongly to the proposals and Plotkin was forced to apologize soon after, saying that he had made a mistake.

On Wednesday, Plotkin said he had started the portfolio liquidation process and would stop charging management fees from June 1. He also said that he had “given everything” that he could but that it was not enough to “deliver the returns that could be expected”. .”

At the end of the first quarter, Melvin’s biggest investments included bets on Live Nation Entertainment (LYV.N), Hilton Worldwide Holdings (HLT.N), Amazon (AMZN.O), and Datadog (DDOG.O). His share prices have fallen sharply in recent weeks, sparking speculation that a hedge fund may be trying to unwind positions.

Plotkin was a star investor in Steven A. Cohen’s hedge fund, formerly called SAC Capital Advisors, but left in 2014 to launch his own firm after SAC pleaded guilty to criminal insider trading charges. Melvin Capital quickly attracted the attention of powerful investors and closed 2020, the year the pandemic began, with a profit of 52.5%.

From 2014 to 2020, Melvin earned an average annualized return of 30%. Between the founding and now, the fund has returned an average of 11.9% per year.

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Reporting by Svea Herbst-Bayliss with additional reporting by Mehnaz Yasmin in Bengaluru; Edited by Amy Caren Daniel and Richard Pullin

Our standards: the Thomson Reuters Trust Principles.

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