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Melvin Capital

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Melvin Capital Management LP
IndustryInvestment management
Founded2014;10 years ago(2014)
FounderGabriel Plotkin
DefunctJune 30, 2022;2 years ago(2022-06-30)
HeadquartersNew York City,U.S.
Key people
  • Gabriel Plotkin (CIO)
  • David F. Kurd (COO)
AUMUS$7.8 billion(Apr. 2022)
SubsidiariesMelvin Capital II Offshore Ltd

Melvin Capital Management LPwas an American investment management firm based inNew York City.[1]It was founded in 2014 byGabriel Plotkin,who named the firm after his late grandfather.[1]

On May 18, 2022, Plotkin announced that the fund would close and return any remaining customer funds by June 2022. Its assets under management (AUM) in April 2022 were about $7.8 billion.[2]

Melvin Capital invested primarily intechnologyand consumer stocks and was noted for its high annual returns in comparison to other hedge funds.[3][4]It was reported to have $8billion in AUM as of January 2021.[5]

During theGameStop short squeezeof 2021, it sustained losses of 53% or $6.8 billion, at one point losing more than a billion dollars a day;[5][6]in Q1 2021, the firm's assets declined 49%, and it finished 2021 down more than 39% on the year, during which theS&P 500rose 28.7%.[6][7][8]Melvin Capital began January 2022 down 17%.[6]

History[edit]

Background[edit]

After graduating fromNorthwestern Universitywith a degree ineconomicsin 2001, Gabriel Plotkin joinedKen Griffin'shedge fundCitadel LLC,and later Connecticut-based hedge fund North Sound Capital.[9]Prior to starting Melvin Capital, Plotkin was a trader atSteve Cohen'sSAC Capital,where he managed a portfolio of mostly consumer stocks valued at about $1.3 billion.[1]

Plotkin was mentioned in theSecurities and Exchange Commission's civil complaint against Michael Steinberg, a fellow SAC portfolio manager who was arrested on charges he traded Dell's earnings based on insider information.[10]During his time at SAC Capital, Plotkin allegedly received emails containing illegal insider information,[11]but was not charged with any wrongdoing.[10]

Foundation and performance before 2021[edit]

CIOGabe Plotkintestified to theHouse Financial Services Committeeabout Melvin Capital's involvement in the GameStop short squeeze in 2021

Plotkin founded Melvin Capital, after leaving SAC in late 2014, naming the fund after his late grandfather who was a small-business owner.[1]He raised nearly $1 billion.[12][13]Plotkin described the fund toBloombergas "a very human-intensive place. We have a lot of analysts, we require a lot out of them."[14]He also said that the fund has an "intense focus" on the short side (i.e.short selling).[14]

The fund was noted for having high returns between 2014 and 2020, averaging 30% annually.[15]In its first full year in operation, Melvin Capital had returns of 47%, ranking it 2nd inBloomberg's2015 list of top-performing funds with $1 billion or more in assets under management.[3][16]These returns were several times that ofSteve Cohen's current hedge fund,Point72,in the same year.[17]

In 2015, nearly two-thirds of the fund’s 67% returns (before fees) derived from its short positions.[6]Notable short positions included bets againstJ.C. Penney Co.and renewable-energy companySunEdison Inc., both of which ultimately went bankrupt.[6]

In 2017, the fund finished up 41%.[18]Notable investments includedChewy.com,Amazon.com,Las Vegas Sands,Alibaba,and shortingGameStop.[19]

The fund had returns of 44% in 2019.[14]According toThe Wall Street Journal,about one-third of the gains in 2019 from Point72 came from Melvin Capital Management LP.[20]

At the end of 2020, it was reported to have made returns of 52%, making it one of the highest-performing hedge funds.[15]In September 2020 the name of company showed up in the Polish Short Sale Registry (Rejestr Krótkiej Sprzedaży) because of a short position in game developersCD Projekt,a net position of 0.55 percent through the Polish stock exchange (GPW).[21][22]

It consistently remained one of the top performing hedge funds until 2021.[4]Melvin charged investors an annual management fee of 2% and up to 30% of its profits, among the highest fee packages in the hedge fund industry.[6]

2021 losses[edit]

See also:GameStop short squeeze

In early 2021 the fund lost over 30% due to numerous short bets that went awry, includingGameStop.[23]Users of thesubredditr/WallStreetBetsmade widespread bets believing that GameStop's stock would increase in value.[24]In January,Citadeland Point72 invested $2.75 billion in Melvin in exchange for non-controlling revenue shares of the fund.[23][25][26][27]CNBC'sAndrew Ross Sorkinreported that Melvin Capital had closed (i.e. covered) its short position in GameStop on January 26 in the afternoon, although CNBC could not confirm the amount that Melvin Capital lost. Melvin Capital also refuted rumors that the fund intended to file for bankruptcy.[28][29]On January 27Bloomberg Newsreported that losses had continued past the 30% reported on January 24 byThe Wall Street Journal(WSJ).[30]The fund had also repositioned its portfolio according to the source.[30]During the height of the squeeze, Melvin was reportedly losing more than a billion dollars a day.[6]

The short position adopted by Melvin Capital and others resulted in more than 139% of existing shares of GME being shorted, making GameStop stock the most shorted equity in the world.[31]Through the end of January 2021, the fund was down 53%, according toWSJ.[5]In February, Melvin posted a 22% gain; even with this addition, Melvin would need to produce an additional 75% gain for earlier clients before breaking even.[32]At the end of Q1 2021, Melvin reported losses of 49%;[7]at the close Q2 2021, Melvin was reported to be down 46% on the year; and as of November 2021, Melvin was reported to be down 42% on the year.[33][34][8]Melvin finished 2021, a year during which theS&P 500rose 28.7%, down more than 39%.[6]

Subsequent to the GameStop short squeeze event, Melvin Capital disclosed that it was the target of at least nine lawsuits relating to its behavior during that period.[35]Allegations included Melvin's participation in a conspiracy against retail investors, and also that Melvin "made misstatements about their role in the conspiracy to the public." Melvin contended that these lawsuits were "without merit".[35]These lawsuits were later dismissed.[36]

2022[edit]

In May 2022,Bloomberg Newsreported that Melvin Capital planned to close its funds and return the cash to its investors by June 30.[37][38]

Executives[edit]

The fund was led by Founder & CIO Gabriel "Gabe" Plotkin. According toForbes,Plotkin earned about $300 million in compensation in 2017, making him the 20th-highest-paid hedge fund manager that year.[39]In December 2020, Plotkin purchased two adjacent houses in Florida for $44 million.[40]Plotkin purchased a minority interest in theCharlotte Hornetsin 2019 fromMichael Jordan.[41]Plotkin led a group of investors who bought Jordan's majority stake in the Hornets in June 2023.[42]

According toBloomberg,during 2020 Plotkin earned over $800 million in compensation.[43]However, during January 2021, he reportedly lost $460 million due to short squeezes.[43]

David F. Kurd was the firm'sCOO.[1]

References[edit]

  1. ^abcdeGoldstein, Matthew (August 15, 2014)."A Former Top SAC Capital Trader Names New Hedge Fund".The New York Times.Archivedfrom the original on October 1, 2019.RetrievedJuly 21,2019.
  2. ^Juliet Chung (May 18, 2022)."Melvin Capital to Close Funds, Return Cash to Investors".The Wall Street Journal.ISSN0099-9660.WikidataQ114844442.RetrievedJune 20,2023.
  3. ^abFoxman, Simone (February 23, 2016)."This SAC Alum Stands Out in Hedge Fund Rankings".Bloomberg News.RetrievedJuly 15,2019.
  4. ^abChung, Juliet; Pulliam, Susan; Michaels, Dave (August 11, 2022)."WSJ News Exclusive | SEC Investigating Melvin Capital Management".Wall Street Journal.ISSN0099-9660.RetrievedAugust 14,2023.
  5. ^abcChung, Juliet (January 31, 2021)."WSJ News Exclusive | Melvin Capital Lost 53% in January, Hurt by GameStop and Other Bets".Wall Street Journal.ISSN0099-9660.Archivedfrom the original on January 31, 2021.RetrievedJanuary 31,2021.
  6. ^abcdefghChung, Juliet (January 28, 2022)."Hedge Fund Melvin Lost $6.8 Billion in a Month. Winning It Back Is Taking a Lot Longer".Wall Street Journal.ISSN0099-9660.RetrievedJanuary 29,2022.
  7. ^abHema Parmar (April 9, 2021)."Plotkin's Melvin Capital Extends First-Quarter Losses to 49%".Bloomberg News.WikidataQ119801331.RetrievedJune 20,2023.
  8. ^abHema Parmar; Katherine Burton (December 30, 2021)."Hedge Funds Salvage 2021 Gains as Private Investments Shine".Bloomberg News.WikidataQ119801414.RetrievedJune 20,2023.
  9. ^Kishan, Saijel; Foxman, Simone (January 6, 2015)."Ex-Point72 Manager Plotkin Is Said to Raise $700 Million".Bloomberg.com.Archivedfrom the original on July 31, 2016.RetrievedJanuary 27,2021.
  10. ^ab"The burden of being SAC Capital's" Portfolio Manager B "".Reuters.April 3, 2013.Archivedfrom the original on January 28, 2021.RetrievedJanuary 27,2021.
  11. ^"Senior manager at SAC Capital indicted for fraud".InvestmentNews.July 19, 2013.Archivedfrom the original on January 26, 2021.RetrievedJanuary 27,2021.
  12. ^Saacks, Bradly (June 28, 2019)."One of this year's top hedge funds has been $7 billion Melvin Capital run by a former top money-maker for Steve Cohen".Business Insider.Archivedfrom the original on July 15, 2019.RetrievedJuly 15,2019.
  13. ^Alden, William; Goldstein, Matthew (February 17, 2015)."Seeing Value After a Plunge, Hedge Funds Bet on Energy Stocks".The New York Times.Archivedfrom the original on July 15, 2019.RetrievedJuly 15,2019.
  14. ^abc"Cohen Cub Gabe Plotkin Sees Fund Surge About 44% This Year".Bloomberg.com.July 19, 2019.Archivedfrom the original on January 27, 2021.RetrievedJanuary 27,2021.
  15. ^abHerbst-Bayliss, Svea (May 19, 2022)."Melvin Capital to shut after heavy losses on meme stocks, market slump".Reuters.RetrievedAugust 7,2023.
  16. ^"Hedge fund rankings 2015".Bloomberg.February 29, 2016.RetrievedJuly 15,2019.
  17. ^Kelly, Kate (November 24, 2015)."Up nearly 40%, SAC alum's fund is one of year's best".CNBC.RetrievedAugust 28,2023.
  18. ^Vardi, Nathan (April 17, 2018)."The 25 Highest-Earning Hedge Fund Managers And Traders".Forbes.Archivedfrom the original on July 7, 2019.RetrievedJuly 15,2019.
  19. ^"Melvin Capital - Current Investments".Fintel.io.Archivedfrom the original on February 5, 2021.RetrievedOctober 10,2019.
  20. ^Levy, Rachael (August 5, 2019)."An Outside Hedge Fund Is Driving Steve Cohen's Gains".The Wall Street Journal.Archivedfrom the original on August 9, 2019.RetrievedAugust 10,2019.
  21. ^"Spora aktywność na CD Projekcie na razie bez wpływu na kurs - Stooq".Archivedfrom the original on January 22, 2021.RetrievedSeptember 24,2020.
  22. ^"RSS UKNF".Archivedfrom the original on October 31, 2020.RetrievedOctober 27,2020.
  23. ^abChung, Juliet (January 25, 2021)."Citadel, Point72 to Invest $2.75 Billion Into Melvin Capital Management".The Wall Street Journal.Archivedfrom the original on January 26, 2021.RetrievedJanuary 25,2021.
  24. ^Wallace, Joe (January 25, 2021)."GameStop Stock Jumps to New Record".Wall Street Journal.ISSN0099-9660.Archivedfrom the original on January 27, 2021.RetrievedJanuary 27,2021.
  25. ^McCabe, Caitlin (January 14, 2021)."GameStop Stock Soars, and Social-Media Traders Claim Victory".Wall Street Journal.ISSN0099-9660.Archivedfrom the original on January 27, 2021.RetrievedJanuary 23,2021.
  26. ^Chung, Juliet (January 22, 2021)."WSJ News Exclusive | Short Bets Pummel Hot Hedge Fund Melvin Capital".Wall Street Journal.ISSN0099-9660.Archivedfrom the original on January 27, 2021.RetrievedJanuary 23,2021.
  27. ^"Ken Griffin's $2 billion bet".Crain's Chicago Business.January 25, 2021.Archivedfrom the original on January 26, 2021.RetrievedJanuary 25,2021.
  28. ^Li, Yun (January 27, 2021)."Melvin Capital, hedge fund targeted by Reddit board, closes out of GameStop short position".CNBC.Archivedfrom the original on January 28, 2021.RetrievedJanuary 27,2021.
  29. ^Watts, William."Hedge fund Melvin Capital closes out GameStop short: CNBC".MarketWatch.Archivedfrom the original on February 5, 2021.RetrievedJanuary 27,2021.
  30. ^abBurton, Katherine; Parmar, Hema (January 27, 2021)."Reddit Traders Bludgeon Melvin Capital in Warning to Wall Street".Bloomberg.Archivedfrom the original on January 27, 2021.RetrievedJanuary 27,2021.
  31. ^D'Souza, Deborah."Short Sellers Lose $5.05 Billion in Bet Against GameStop".Investopedia.Archivedfrom the original on January 28, 2021.RetrievedJanuary 29,2021.
  32. ^Burton, Katherine; Parmar, Hema (March 4, 2021)."Melvin Capital Dusts Off From GameStop Fiasco With 22% Gain".MSN.Bloomberg.RetrievedMarch 5,2021.
  33. ^Porzecanski and Parmar, Katia and Hema (July 8, 2021)."Melvin Can't Shake Reddit Attack With 46% Loss in First Half".Bloomberg.
  34. ^Chung, Juliet (July 10, 2021)."The Meme Stock Rally Hurt Melvin and Maplelane. It Hasn't Gotten Easier Since".Wall Street Journal.ISSN0099-9660.RetrievedJuly 12,2021.
  35. ^abCelarier, Michelle (March 22, 2021)."Melvin Capital Is Facing Nine Lawsuits Related to the GameStop Frenzy".Institutional Investor.RetrievedMarch 23,2021.
  36. ^Godoy, Jody (January 27, 2022)."Court dismisses claims Robinhood wrongly restricted 'meme stock' trades".Reuters.RetrievedAugust 28,2023.
  37. ^Hema Parmar (May 18, 2022)."Plotkin Shuts Melvin Hedge Fund Left Reeling by Redditor Attack".Bloomberg News.Archived fromthe originalon May 19, 2022.
  38. ^Goldstein, Matthew; Kelly, Kate (May 18, 2022)."Melvin Capital, hedge fund torpedoed by the GameStop frenzy, is shutting down".The New York Times.
  39. ^"Gabriel Plotkin".Forbes.Archivedfrom the original on January 27, 2021.RetrievedJanuary 27,2021.
  40. ^Kallergis, Katherine (December 7, 2020)."Gamestop Short Seller Gabe Plotkin Buys Miami Beach Property".The Real Deal South Florida.Archivedfrom the original on January 27, 2021.RetrievedJanuary 27,2021.
  41. ^NBA.com Staff (September 14, 2019)."Michael Jordan sells minority stake in Hornets Sports & Entertainment".NBA.Archivedfrom the original on February 5, 2021.RetrievedJanuary 27,2021.
  42. ^Lee, Hank (June 16, 2023)."J. Cole, Eric Church among group buying Charlotte Hornets from Jordan".WCNC.RetrievedJune 20,2023.
  43. ^abMaloney, Tom; Parmar, Hema (February 10, 2021)."Coleman Leads $23 Billion Payday for 15 Hedge Fund Earners".Bloomberg.Archivedfrom the original on February 10, 2021.RetrievedFebruary 10,2021.

External links[edit]

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