What Happened to Melvin Capital and Its Financial Struggles

Melvin Capital, a hedge fund founded by Ken Griffin, faced significant financial struggles in 2021. The fund suffered a net loss of 53% for the year, making it one of the worst performing hedge funds in history.

The fund's struggles were largely due to a series of bad bets on individual stocks, including GameStop and AMC Entertainment. These bets led to a significant loss for the fund, which was exacerbated by the unexpected market movements.

Melvin Capital's losses were so severe that they forced the fund to accept a bailout from its investors, who provided an additional $1.1 billion in capital to help the fund stay afloat.

Melvin Capital, once one of Wall Street's most successful hedge funds, shut down after heavy losses on meme stocks and a market slump.

The fund lost 23% in the first four months of 2022, a significant blow to its $7.8 billion in assets at the end of April.

Gabe Plotkin, the fund's manager, tried to turn things around after being caught out in early 2021 betting against retail favorite GameStop.

However, Melvin Capital's losses continued this year, with Plotkin stating that he had already raised a substantial amount of cash and cut the funds' exposure.

The fund's losses come on the heels of steep losses in 2021 when Melvin Capital ended the year down 39%.

Melvin Capital's portfolio was heavily short-seller of GameStop, which led to a 53% loss in January 2021 after retail investors banded together to target the fund's short positions.

The fund's losses were so severe that it received a $2 billion bailout from Citadel, a hedge fund owned by billionaire Ken Griffin.

Despite the bailout, Melvin Capital's losses continued, with clients who were invested in the fund at the start of 2021 losing about 57% of their money by the end of May 2022.

Plotkin eventually decided to stop charging management fees beginning June 1 and started the process of liquidating the portfolio.

The decision to shut down the fund was a result of Plotkin's admission that he had "given everything" he could but it was not enough to "deliver the returns you should expect".

Additional reading: What Happened to Melvin Capital

Melvin Capital had $7.8 billion in assets at the end of April.

The fund lost 23% in the first four months of 2022.

Melvin Capital's losses come on the heels of steep losses in 2021 when the firm ended the year down 39%.

The firm bet that shares of GameStop would tumble but was battered when retail investors took the other side and sent the stock surging.

Melvin Capital had already raised a substantial amount of cash and cut the fund's exposure before announcing its shutdown.

The fund's losses were so severe that even powerful investors like Citadel LLC and Point72 Asset Management, where Plotkin had once worked, were forced to invest billions in emergency cash in early 2021.

Melvin Capital started the year with roughly $12.5 billion in assets, but ended January with more than $8 billion after receiving commitments from current investors for more capital.

The fund's portfolio liquidity is strong, with the use of leverage at the lowest level since Melvin Capital's inception in 2014.

Melvin Capital's losses in January were a staggering 53% after the firm's bet against GameStop backfired.

The fund's struggles continued this year, with Plotkin saying he had given everything he could but it was not enough to deliver the returns investors should expect.

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The regulatory agency is taking a close look at Melvin Capital's risk controls and disclosures following the meme-stock losses.

Melvin lost $6.8 billion in January 2021, or more than half its assets under management, as retail and other investors banded together to target the fund's short positions.

The SEC and other law-enforcement authorities have investigated the frenzied trading in early 2021 that sent shares of GameStop Corp. and others soaring.

Melvin's founder, Mr. Plotkin, and other executives told clients in virtual meetings that they planned to soldier on and strengthen their risk-management practices after surviving an unforeseeable market phenomenon.

As Melvin was pummeled anew by the selloff in technology and other fast-growing companies this year, Mr. Plotkin attempted to start charging incentive fees before making his clients whole.

The continued spotlight also wore on Mr. Plotkin, making it difficult for Melvin to come up with new terms palatable to clients that also would motivate Mr. Plotkin’s team.

By the end of May 2022, clients who were invested in Melvin at the start of 2021 had lost about 57% of their money, meaning Mr. Plotkin would have had to make more than 132% to make clients whole.

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