Hedge Fund Melvin Lost $6.8 Billion in a Month. Winning It Back Is Taking a Lot Longer. (2024)

FAQs

How did Melvin Capital lose money? ›

Melvin Capital, hedge fund torpedoed by the GameStop frenzy, is shutting down. The firm lost billions of dollars as it scrambled to cover its bets against the video game retailer that became a darling of retail traders.

His fortunes turned in January 2021, when a group of retail investors instituted a short squeeze against Melvin's bearish bets, including GameStop Corp., pushing the hedge fund to a 55% loss.

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 the heels of steep losses in 2021 when Melvin Capital ended the year down 39%.

The hedge funds that were short GameStop before the frenzy lost $10 billion in the squeeze that saw the stock soar as high as $483 per share, according to a recent report by S3 Partners.

Hedge fund Melvin Capital Management lost 53% in January amid a record rally in GameStop and other stocks the fund was betting against, a source familiar with the matter told CNBC. The heavy losses come as retail investors piled into popular hedge fund short targets, including the struggling video game retailer.

Melvin Capital Management LP was an American investment management firm based in New York City. It was founded in 2014 by Gabriel Plotkin, who named the firm after his late grandfather. New York City, U.S. On May 18, 2022 Plotkin announced that the fund would close and return any remaining customer funds by June 2022.

Amid this mayhem, a few people like Rodriguez became overnight millionaires. They started the journey from the same embarkation point: Reading about GameStop on WallStreetBets, the investing-focused Reddit group where the movement coalesced.

The chief beneficiary of the GameStop rise is Ryan Cohen, co-founder of Chewy, who owns 13% stake in GameStop. The other big GameStop winner is Donald Foss, the 76-year-old founder and former CEO of Credit Acceptance Corp., a subprime auto lender.

Who owns Gamestop? Gamestop (NYSE: GME) is owned by 28.00% institutional shareholders, 20.15% Gamestop insiders, and 51.85% retail investors. Ryan Cohen is the largest individual Gamestop shareholder, owning 36.85M shares representing 12.09% of the company. Ryan Cohen's Gamestop shares are currently valued at $773.07M.

1. Madoff Investment Scandal. Madoff admitted to his sons who worked at the firm that the asset management business was fraudulent and a big lie in 2008. 2 It is estimated the fraud was around $65 billion.

Did Melvin Capital cover their shorts? ›

Melvin Capital Closed Out All of Its Public Short Positions in the First Quarter.

Firm lost big on meme-stock surge in early days of Covid-19 pandemic. Melvin Capital plans to close its funds and return the cash to its investors, capping a stunning reversal for a firm that lost big on the surge in meme stocks last year and on wagers on growth stocks this year.

Although short squeezes may occur naturally in the stock market the U.S. Securities and Exchange Commission (SEC) states that abusing short sale practices is illegal.

Potentially unlimited losses

However, with short selling, there's no limit on how much a hedge fund could stand to lose.

During the coronavirus pandemic Citadel LLC created a "bubble" for a class of 100 interns by renting out a luxury resort in Wisconsin. In January 2021, Citadel and Point72 Asset Management invested $2.75 billion in Melvin Capital, after Melvin Capital lost 53% of its value owing to the GameStop short squeeze.

Gill has returned to obscurity: albeit much richer thanks to his GameStop positions that at one point reached $48 million in value. He no longer works in marketing at insurer MassMutual. The Massachusetts securities regulator is still probing Gill's activities around the Reddit rally, a spokeswoman said.

Melvin Capital Management, the hedge fund that closed earlier this year after being partially bailed out by Citadel founder Ken Griffin, is being investigated over whether the firm misled investors.