(Bloomberg) – Gabe Plotkin plans to close down Melvin Capital Management after suffering billions of dollars in losses and angering investors with a misguided plan to reopen the firm.
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The high-flying hedge fund once told clients that it would liquidate the fund and return cash to investors. The New York-based company operated লার 7.8 billion at the end of April.
“The last 17 months have been an incredibly testing time for the firm and you, our investors,” wrote founder Gabe Platkin in a letter seen by Bloomberg. “I have given everything I can, but it is not enough to give you the expected return lately. I agree now that I have to move away from managing foreign capital. “
Plotkin started Melvin in late 2014 after Steve Cohen left Point72 Asset Management and posted about 30% returns a year until 2020. His fortunes turned to January 2021, when a group of retail investors created a brief pressure against Melvin’s bearish bets, including Gamestop Corporation, pushing the hedge fund to a 55% loss.
Although the firm made money in the following months, 39% less at the end of the year, Platkin’s rebound was short-lived. As of April this year, the company has lost more than 23%.
A spokesman for the firm declined to comment.
Plotkin last month devised a plan to limit the size of the fund to about 5 5 billion and overhaul Melvin – at the time it was $ 8.7 billion – and he told investors he would not allow it to expand beyond at least 7 billion. June 2027. He also wanted to pay a performance fee to those who chose to stick with him even though they had incurred huge losses and the funds were deeply red.
The offer would enable Platkin to pay his 30 investment professionals, without having to raise capital himself. Some investors were so enraged that it was quickly fired, prompting Platkin to apologize.
“I’m sorry. I got this one mistake. I made a mistake. I apologize,” Platkin wrote in a note to clients in late April. We’re focused on future returns and team continuity. “
This is a huge comeback for someone who was a superstar in the hedge fund world and who trusted Cohen.
He joined, then called SAC, in 2006 where he invested in most consumer stocks, eventually running more than $ 1 billion. Cohen described Platkin as an “extraordinary investor” and then backed him when he started his own firm in 2014, where Point 72 Asset Management invested about $ 200 million.
Melvin, named after Platkin’s late grandfather, performed exceptionally well, gaining 46% in 2015 and 51% in 2020. Its profits were driven by bearish bets, but it ultimately helped destroy the firm.
In 2021 Platkin became the target of a retail trading force that used Reddit to bid on stocks, most notably GameStop, a struggling brick-and-mortar retailer that was a bearish bet on Melvin.
When the stock closed – Melvin was shorting with other stocks – it wiped out about $ 7 billion in hedge fund capital in January 2021, a path from which it never recovered.
(Updated with strong resources in the second paragraph.)
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