Melvin Capital’s assets stood at $7.8 billion at the end of April. According to a person familiar with the fund’s finances, the fund lost 23% in the first four months of 2022.
Melvin Capital, once one of Wall Street’s most successful hedge funds before losing billions in the meme stock saga, will close after being hit again by this year’s market downturn.
Gabe Plotkin, widely regarded as one of the industry’s best traders after years of double-digit returns, told investors that the previous 17 months had been “an incredibly trying time.”
Plotkin had been attempting to turn around the company after being caught off guard in early 2021 betting against retail favourite GameStop (GME.N) and being caught off guard again this year by tumbling markets.
Melvin boasted average annualised returns of 30% from 2014 to 2020. Between its inception and the present, the fund has returned an average of 11.9 percent per year.
This year’s losses follow steep losses in 2021, when Melvin Capital finished the year down 39%. The firm predicted that GameStop’s stock would fall, but it was crushed when retail investors took the opposite side and sent the stock soaring.
At the start of 2021, the company’s assets totaled $12.5 billion.
Plotkin stated in the letter that he had already raised significant funds and reduced the funds’ exposure.
For a time, Citadel LLC and Point72 Asset Management, where Plotkin had previously worked, continued to back Melvin, investing billions in emergency cash in early 2021 amid meme stock losses.
Plotkin told investors earlier this year that he planned to reorganise and reduce assets to $5 billion from roughly $8.7 billion, as well as charge lower fees for a period of time. Investors were outraged by the proposals, and Plotkin was forced to apologise shortly thereafter, claiming he had made a mistake.
Plotkin announced on Wednesday that he had begun the process of liquidating the portfolio and that he would no longer charge management fees beginning June 1. He also stated that while he had “given everything” he could, it was insufficient to “deliver the returns you should expect.”
Melvin’s largest investments at the end of the first quarter included bets on Live Nation Entertainment (LYV.N), Hilton Worldwide Holdings (HLT.N), Amazon (AMZN.O), and Datadog (DDOG.O). Their stock prices have plummeted in recent weeks, raising speculation that a hedge fund is attempting to unwind positions.
Plotkin was a star investor at Steven A. Cohen’s hedge fund, SAC Capital Advisors, but left in 2014 to start his own firm after SAC pleaded guilty to criminal insider trading charges. Melvin Capital quickly drew attention and powerful investors, and ended 2020, the year the pandemic began, with 52.5 percent gains.
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