Gabe Plotkin’s Melvin Capital to wind down funds

Melvin Capital Management, the hedge fund that lost billions of dollars during last year’s meme-stock rally, has told clients it is winding down its funds.

Gabe Plotkin, the New York-based firm’s founder, told clients he planned to return cash to investors after a difficult stretch. “The past 17 months has been an incredibly trying time for the firm and you, our investors,” he said in a letter to investors seen by the Financial Times.

Melvin was hit hard in January 2021 after its short position on GameStop — a bet that its share price would drop — failed miserably as an army of investors on Reddit started buying shares in the video game retailer, pushing its value up as much as 2,400 per cent.

The firm managed to make up some of the losses it suffered later in the year, but its performance has declined 23 per cent in the first four months of 2022 amid the recent market downturn and sell-off in technology stocks.

Melvin, which had $7.8bn under management as of April, had communicated to clients that it was planning to reduce its assets to about $5bn in the hopes of kick-starting its performance.

“I have given everything I could, but more recently that has not been enough to deliver the returns you should expect. I now recognise that I need to step away from managing external capital,” Plotkin wrote in the letter.

His decision to close the funds marks a stark turn of fortune for the investor who made his name at Steve Cohen’s SAC Capital Management before launching Melvin in 2014. Plotkin, whose firm delivered average returns of 30 per cent per year until the start of 2021, was widely regarded among the best managers in the hedge fund industry.

The move also came after Plotkin was forced to backtrack on a plan to charge performance fees again by removing Melvin’s so-called high-water mark, an agreement that stops a manager from charging performance fees until losses have been recovered.

Plotkin last month said he would take several weeks to process feedback and come up with a new plan. He had apologised to investors and admitted he was “initially tone deaf”.