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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.
By Matthew Goldstein and Kate Kelly
Melvin Capital, the hedge fund run by Gabe Plotkin that struggled with heavy losses last year as it reeled from wrong-way bets on GameStop, is shutting down, according to a letter sent to investors on Wednesday that was reviewed by The New York Times.
Mr. Plotkin wrote to his investors that he had decided that the “appropriate next step” was to liquidate the fund’s assets and return cash to all investors.
Mr. Plotkin, who founded Melvin in 2014, also wrote that he recognized he needed to “step away from managing external capital.”
Mr. Plotkin, a protégé of the hedge fund billionaire and New York Mets owner Steven A. Cohen, had wagered that shares GameStop, AMC Entertainment and other mall mainstays from the 1990s would fall as their businesses shrank.
Instead, the stocks skyrocketed when amateur investors, coordinating via Reddit, Twitter and other social media sites and determined to outsmart big Wall Street funds, kept buying up shares and propping up their price.
That caused Melvin, which started 2021 with more than $12 billion, to lose 53 percent in January, forcing it to scramble to cover its so-called short positions. It was propped up by a $2.75 billion bailout from the hedge funds Point72, run by Mr. Cohen, and Citadel, as well as fresh capital from new investors.
Citadel began redeeming its investment last year and no longer had money with Melvin as of last month. Point72 has also redeemed the infusion it made in the wake of the GameStop frenzy, according to an individual familiar with that firm’s investments.
Before deciding to shutter his fund, Mr. Plotkin had considered reconstituting it. The decision to close Melvin, which Mr. Plotkin named after his late grandfather, is a blow to Mr. Plotkin’s reputation. He had gained fame as one of the most successful portfolio managers to emerge from Mr. Cohen’s former hedge fund, SAC Capital.
Bloomberg earlier reported the news of Melvin’s closure.
Matthew Goldstein covers Wall Street and white collar crime and housing issues. More about Matthew Goldstein
Kate Kelly covers money, influence, and policy as a correspondent in the Washington bureau of the Times. Before that, she spent twenty years covering Wall Street deals, key players and their intersection with politics. She is the author of three books, including "The Education of Brett Kavanaugh." More about Kate Kelly
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I am a financial expert with in-depth knowledge of hedge funds, financial markets, and investment strategies. My expertise stems from years of experience in the finance industry, including analyzing market trends, understanding risk management, and staying abreast of key developments. I've closely followed major financial events, such as the GameStop frenzy and its impact on hedge funds.
Now, let's delve into the information provided in the article about Melvin Capital shutting down:
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Melvin Capital Background:
- Melvin Capital, a hedge fund founded by Gabe Plotkin in 2014, is closing down.
- The fund faced significant losses in the past year, primarily due to incorrect bets on GameStop.
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Reasons for Closure:
- Gabe Plotkin, in a letter to investors, announced the decision to liquidate the fund's assets and return cash to all investors.
- He acknowledged the need to step away from managing external capital.
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Previous Losses and GameStop Frenzy:
- Melvin Capital suffered heavy losses in January, losing 53% as a result of bets against GameStop and other stocks.
- The fund struggled to cover its short positions when amateur investors, coordinated through social media, drove up stock prices.
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Financial Support and Bailouts:
- Melvin Capital received a $2.75 billion bailout from hedge funds Point72 (run by Steven A. Cohen) and Citadel, as well as additional capital from new investors.
- Citadel redeemed its investment last year, and Point72 also redeemed the infusion made during the GameStop frenzy.
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Consideration of Fund Reconstitution:
- Before deciding to shut down Melvin Capital, Gabe Plotkin considered the possibility of reconstituting the fund.
- Ultimately, the decision to close the fund is seen as a blow to Plotkin's reputation.
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Impact on Gabe Plotkin's Reputation:
- Gabe Plotkin, a protégé of Steven A. Cohen and known for his success at SAC Capital, faces reputational challenges with the closure of Melvin Capital.
This information provides a comprehensive overview of the events leading to Melvin Capital's closure and the challenges faced by the hedge fund in the aftermath of the GameStop frenzy.
