Melvin Capital closed after heavy losses in MIM shares, and the market fell

May 18 (Reuters) – Melvin Capital, once one of Wall Street’s most successful hedge funds and subsequently losing billions in its epic M-shares, will close after being hit again by the market’s slump this year.

Gabe Plotkin, widely seen as one of the best traders in the industry after recording years of double-digit returns, told investors that the past 17 months have been an “incredibly tough time.”

Plotkin was trying to turn the company around after he was caught in early 2021 betting against the retail favorite GameStop (GME.N) and after he got wrong again by plummeting markets this year.

Register now to get free unlimited access to Reuters.com

“The appropriate next step is to terminate the funds by fully liquidating the assets and accounts of the funds and returning the cash to all investors,” Plotkin wrote in a letter seen by Reuters on Wednesday.

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

This year’s losses follow steep losses in 2021 when Melvin Capital ended the year down 39%. The company bet that GameStop’s stock would crash but it took a beating when retail investors veered off the side and sent the stock higher.

The company had $12.5 billion in assets at the beginning of 2021.

Plotkin said in the letter that he has already raised a large amount of cash and reduced exposure to the funds.

A Plotkin spokesperson declined to comment.

For some time, powerful investors continued to support Melvin with Citadel LLC and Point72 Asset Management, where Plotkin once worked, and invest billions in emergency funds in early 2021 amid losses in meme stock.

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

On Wednesday, Plotkin said he has begun the process of liquidating the wallet and will stop charging management fees starting June 1. He also said he “gave everything” he could but it was not enough “to deliver the returns you should expect”. “

At the end of the first quarter, the two biggest investments included bets on Live Nation Entertainment (LYV.N), Hilton Worldwide Holdings (HLT.N), Amazon (AMZN.O) and Datadog (DDOG.O). Their stock prices have fallen sharply in the past weeks, fueling speculation that a hedge fund may try to unload positions.

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

From 2014 to 2020, Melvin boasted average annual returns of 30%. Between incorporation and now, the fund has returned an average of 11.9% per year.

Register now to get free unlimited access to Reuters.com

(Reporting by Sophia Herbst Paylis) with additional reporting by Mahnaz Yasmin in Bengaluru; Editing by Amy Karen Daniel and Richard Boleyn

Our Standards: Thomson Reuters Trust Principles.

Leave a Comment