Melvin Capital decides to liquidate its business. The losses ate up more than half of the capital

Well-known hedge fund Melvin Capital is preparing to liquidate its business, more than a year after the huge losses it suffered during the “short press” caused by a group of individual traders through their organized campaign on the social networking site Reddit.

The company founder’s sudden decision, Gaby Plotkin, announced in a letter to customers on Wednesday, ends his long-running effort for a return funded by some of Wall Street’s biggest players. His initial promises after the crisis last year showed his ability to make a comeback, but he collapsed in recent weeks as he suffered new losses and frustrated his supporters with a short-term plan to reinstate their duties. .

And the $ 7.8 billion hedge fund started giving up and closing.

“The past 17 months have been a difficult time for the company and our investors,” the 43-year-old founder of Plotkin wrote in a copy of the message sent by Bloomberg and viewed by Al That was not enough. to achieve the return you should expect. I now realize that I need to move away from managing other people’s money. “

Plotkin was the most prominent victim of the “meme share” frenzy in January 2021, when individual investors teamed up in a campaign to raise the share price of GameStop Corp. and other companies have soared.

As a result of Plotkin’s mistake by placing clumsy bets against stocks in a public way, he lost billions in what is called a short press, causing his hedge fund to suffer a 55% loss that month.

But then came an extraordinary second chance. The Point72 Asset Management Funds of his former employer, Stephen Cohen, and the funds of billionaire Citadel Corporation Ken Griffin, as well as partners in his Chicago-based company, provided $ 2.75 billion to Melvin, who managed to cover losses story and ended the year. 39% lower.

Investors were willing to give him some space, realizing that the short print of Reddit’s January campaign was a strange event.

But the recovery – and potential optimism – was short-lived. Plotkin’s hedge fund fell by more than 23% during April this year. And there are signs that it was heading for the latest loss, with losses in 5 shares from the six biggest bets Melvin held at the end of the first quarter, with more than double figures this month. The sixth bet dropped by 8%.

And after last year’s disaster, Plotkin has publicly pledged to stop engaging in the kind of big short-selling transactions that have borne fruit like lottery tickets amid the current market slump.

exit plan

With the company dismantled, Plotkin outlined plans to return investors’ money. In his letter, he said, Melvin “has already significantly reduced exposure to funds” and will not charge an administrative fee from June 1st. At least 50% of the investors’ money will be repaid by 31 May, and the rest by 30 June.

The latest decision follows Plutkin’s second plan to correct Melvin a month ago, as he sought a solution by reducing the fund’s size to about $ 5 billion – at the time it was $ 8.7 billion – and for investors says he will not allow it to expand above $ 7. billion until June 2027 at least. He also wanted investors who wanted to stay with him to pay performance fees despite the huge losses they suffered.

This proposal would have enabled Plotkin to pay 30 professional investments without the need to raise capital itself, leaving some investors in a state of rage, which led to a rapid withdrawal of the proposal and an apology from Plotkin.

In late April, Plotkin wrote to his clients, “I’m sorry. I got it wrong. I got it wrong.” “In hindsight and despite our intentions, we now realize that we have focused on future returns and team continuity without sufficient consideration of your investment losses.”

Ken Griffin, founder of Citadel Corporation

exceptional investor

The decision to close two files is a huge loss for someone who was a star in the hedge fund world and who had Cohen’s confidence.

Plotkin joined Cohen’s company, then called SAC, in 2006, investing primarily in individual stocks. Cohen described Plotkin as an “exceptional investor” and then backed him when he set up his own company in 2014, with Point72 investing nearly $ 200 million.

Melvin Capital Fund, named after Plotkin’s late grandfather, won 46% in 2015 and 51% in 2020.

About 70% of the company’s first year of profit is due to the strong focus on short sales.

But by the beginning of last year, Plutiken was the target of an army of individual traders who used Reddit to bet on a stock rally, namely GameStop, a video game retailer that was on the verge of collapse due to the coronavirus .

When the stock – along with other stocks on which Melvin bet – began wiping out about $ 7 billion in hedge fund capital that month, ushering in a downward spiral that he could never end.

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