Melvin Capital

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 LP was an American investment management firm based in New York City.[1] It was founded in 2014 by Gabriel 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 in technology and consumer stocks and was noted for its high annual returns in comparison to other hedge funds.[3][4] It was reported to have $8 billion in AUM as of January 2021.[5]

During the GameStop short squeeze of 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 the S&P 500 rose 28.7%.[6][7][8] Melvin Capital began January 2022 down 17%.[6]

History

Background

After graduating from Northwestern University with a degree in economics in 2001, Gabriel Plotkin joined Ken Griffin's hedge fund Citadel LLC, and later Connecticut-based hedge fund North Sound Capital.[9] Prior to starting Melvin Capital, Plotkin was a trader at Steve Cohen's SAC Capital, where he managed a portfolio of mostly consumer stocks valued at about $1.3 billion.[1]

Plotkin was mentioned in the Securities 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

CIO Gabe Plotkin testified to the House Financial Services Committee about 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 to Bloomberg as "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 in Bloomberg's 2015 list of top-performing funds with $1 billion or more in assets under management.[3][16] These returns were several times that of Steve 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 against J.C. Penney Co. and renewable-energy company SunEdison Inc., both of which ultimately went bankrupt.[6]

In 2017, the fund finished up 41%.[18] Notable investments included Chewy.com, Amazon.com, Las Vegas Sands, Alibaba, and shorting GameStop.[19]

The fund had returns of 44% in 2019.[14] According to The 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 developers CD 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

In early 2021 the fund lost over 30% due to numerous short bets that went awry, including GameStop.[23] Users of the subreddit r/WallStreetBets made widespread bets believing that GameStop's stock would increase in value.[24] In January, Citadel and Point72 invested $2.75 billion in Melvin in exchange for non-controlling revenue shares of the fund.[23][25][26][27] CNBC's Andrew Ross Sorkin reported 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 27 Bloomberg News reported that losses had continued past the 30% reported on January 24 by The 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 to WSJ.[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 the S&P 500 rose 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

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

Executives

The fund was led by Founder & CIO Gabriel "Gabe" Plotkin. According to Forbes, 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 the Charlotte Hornets in 2019 from Michael Jordan.[41] Plotkin led a group of investors who bought Jordan's majority stake in the Hornets in June 2023.[42]

According to Bloomberg, 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's COO.[1]

References

  1. ^ a b c d e Goldstein, Matthew (August 15, 2014). "A Former Top SAC Capital Trader Names New Hedge Fund". The New York Times. Archived from the original on October 1, 2019. Retrieved July 21, 2019.
  2. ^ Juliet Chung (May 18, 2022). "Melvin Capital to Close Funds, Return Cash to Investors". The Wall Street Journal. ISSN 0099-9660. Wikidata Q114844442. Retrieved June 20, 2023.
  3. ^ a b Foxman, Simone (February 23, 2016). "This SAC Alum Stands Out in Hedge Fund Rankings". Bloomberg News. Retrieved July 15, 2019.
  4. ^ a b Chung, Juliet; Pulliam, Susan; Michaels, Dave (August 11, 2022). "WSJ News Exclusive | SEC Investigating Melvin Capital Management". Wall Street Journal. ISSN 0099-9660. Retrieved August 14, 2023.
  5. ^ a b c Chung, Juliet (January 31, 2021). "WSJ News Exclusive | Melvin Capital Lost 53% in January, Hurt by GameStop and Other Bets". Wall Street Journal. ISSN 0099-9660. Archived from the original on January 31, 2021. Retrieved January 31, 2021.
  6. ^ a b c d e f g h Chung, 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. ISSN 0099-9660. Retrieved January 29, 2022.
  7. ^ a b Hema Parmar (April 9, 2021). "Plotkin's Melvin Capital Extends First-Quarter Losses to 49%". Bloomberg News. Wikidata Q119801331. Retrieved June 20, 2023.
  8. ^ a b Hema Parmar; Katherine Burton (December 30, 2021). "Hedge Funds Salvage 2021 Gains as Private Investments Shine". Bloomberg News. Wikidata Q119801414. Retrieved June 20, 2023.
  9. ^ Kishan, Saijel; Foxman, Simone (January 6, 2015). "Ex-Point72 Manager Plotkin Is Said to Raise $700 Million". Bloomberg.com. Archived from the original on July 31, 2016. Retrieved January 27, 2021.
  10. ^ a b "The burden of being SAC Capital's "Portfolio Manager B"". Reuters. April 3, 2013. Archived from the original on January 28, 2021. Retrieved January 27, 2021.
  11. ^ "Senior manager at SAC Capital indicted for fraud". InvestmentNews. July 19, 2013. Archived from the original on January 26, 2021. Retrieved January 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. Archived from the original on July 15, 2019. Retrieved July 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. Archived from the original on July 15, 2019. Retrieved July 15, 2019.
  14. ^ a b c "Cohen Cub Gabe Plotkin Sees Fund Surge About 44% This Year". Bloomberg.com. July 19, 2019. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  15. ^ a b Herbst-Bayliss, Svea (May 19, 2022). "Melvin Capital to shut after heavy losses on meme stocks, market slump". Reuters. Retrieved August 7, 2023.
  16. ^ "Hedge fund rankings 2015". Bloomberg. February 29, 2016. Retrieved July 15, 2019.
  17. ^ Kelly, Kate (November 24, 2015). "Up nearly 40%, SAC alum's fund is one of year's best". CNBC. Retrieved August 28, 2023.
  18. ^ Vardi, Nathan (April 17, 2018). "The 25 Highest-Earning Hedge Fund Managers And Traders". Forbes. Archived from the original on July 7, 2019. Retrieved July 15, 2019.
  19. ^ "Melvin Capital - Current Investments". Fintel.io. Archived from the original on February 5, 2021. Retrieved October 10, 2019.
  20. ^ Levy, Rachael (August 5, 2019). "An Outside Hedge Fund Is Driving Steve Cohen's Gains". The Wall Street Journal. Archived from the original on August 9, 2019. Retrieved August 10, 2019.
  21. ^ "Spora aktywność na CD Projekcie na razie bez wpływu na kurs - Stooq". Archived from the original on January 22, 2021. Retrieved September 24, 2020.
  22. ^ "RSS UKNF". Archived from the original on October 31, 2020. Retrieved October 27, 2020.
  23. ^ a b Chung, Juliet (January 25, 2021). "Citadel, Point72 to Invest $2.75 Billion Into Melvin Capital Management". The Wall Street Journal. Archived from the original on January 26, 2021. Retrieved January 25, 2021.
  24. ^ Wallace, Joe (January 25, 2021). "GameStop Stock Jumps to New Record". Wall Street Journal. ISSN 0099-9660. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  25. ^ McCabe, Caitlin (January 14, 2021). "GameStop Stock Soars, and Social-Media Traders Claim Victory". Wall Street Journal. ISSN 0099-9660. Archived from the original on January 27, 2021. Retrieved January 23, 2021.
  26. ^ Chung, Juliet (January 22, 2021). "WSJ News Exclusive | Short Bets Pummel Hot Hedge Fund Melvin Capital". Wall Street Journal. ISSN 0099-9660. Archived from the original on January 27, 2021. Retrieved January 23, 2021.
  27. ^ "Ken Griffin's $2 billion bet". Crain's Chicago Business. January 25, 2021. Archived from the original on January 26, 2021. Retrieved January 25, 2021.
  28. ^ Li, Yun (January 27, 2021). "Melvin Capital, hedge fund targeted by Reddit board, closes out of GameStop short position". CNBC. Archived from the original on January 28, 2021. Retrieved January 27, 2021.
  29. ^ Watts, William. "Hedge fund Melvin Capital closes out GameStop short: CNBC". MarketWatch. Archived from the original on February 5, 2021. Retrieved January 27, 2021.
  30. ^ a b Burton, Katherine; Parmar, Hema (January 27, 2021). "Reddit Traders Bludgeon Melvin Capital in Warning to Wall Street". Bloomberg. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  31. ^ D'Souza, Deborah. "Short Sellers Lose $5.05 Billion in Bet Against GameStop". Investopedia. Archived from the original on January 28, 2021. Retrieved January 29, 2021.
  32. ^ Burton, Katherine; Parmar, Hema (March 4, 2021). "Melvin Capital Dusts Off From GameStop Fiasco With 22% Gain". MSN. Bloomberg. Retrieved March 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. ISSN 0099-9660. Retrieved July 12, 2021.
  35. ^ a b Celarier, Michelle (March 22, 2021). "Melvin Capital Is Facing Nine Lawsuits Related to the GameStop Frenzy". Institutional Investor. Retrieved March 23, 2021.
  36. ^ Godoy, Jody (January 27, 2022). "Court dismisses claims Robinhood wrongly restricted 'meme stock' trades". Reuters. Retrieved August 28, 2023.
  37. ^ Hema Parmar (May 18, 2022). "Plotkin Shuts Melvin Hedge Fund Left Reeling by Redditor Attack". Bloomberg News. Archived from the original on 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. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  40. ^ Kallergis, Katherine (December 7, 2020). "Gamestop Short Seller Gabe Plotkin Buys Miami Beach Property". The Real Deal South Florida. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  41. ^ NBA.com Staff (September 14, 2019). "Michael Jordan sells minority stake in Hornets Sports & Entertainment". NBA. Archived from the original on February 5, 2021. Retrieved January 27, 2021.
  42. ^ Lee, Hank (June 16, 2023). "J. Cole, Eric Church among group buying Charlotte Hornets from Jordan". WCNC. Retrieved June 20, 2023.
  43. ^ a b Maloney, Tom; Parmar, Hema (February 10, 2021). "Coleman Leads $23 Billion Payday for 15 Hedge Fund Earners". Bloomberg. Archived from the original on February 10, 2021. Retrieved February 10, 2021.

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