Melvin Capital

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Melvin Capital Management LP
IndustryInvestment management
Founded2014; 7 years ago (2014)
FounderGabriel Plotkin
Headquarters535 Madison Avenue Floor 22 New York, NY 10022
Key people
Gabriel Plotkin
(Founder and Chief Investment Officer)
David F. Kurd
(Chief Operations Officer)
AUMUS$8 billion (Jan. 2021)
SubsidiariesMelvin Capital II Offshore Ltd
Websitemelvincapital.com

Melvin Capital Management LP is 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]

Melvin Capital invests primarily in tech and consumer stocks and is reported to have $8 billion in assets under management (AUM) as of January 2021.[2] During the GameStop short squeeze of 2021, they sustained losses of 53%;[2] in Q1 2021, the firm's assets declined 49%.[3][4]

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.[5] 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]

During his time at SAC Capital, Plotkin was the recipient of illegal insider information according to federal prosecutors.[6] Reuters identified Plotkin as the so called "Portfolio Manager B" in the Securities and Exchange Commission's civil complaint against Michael Steinberg, a fellow SAC PM who was arrested on charges he traded Dell's earnings based on insider information.[7] Plotkin was allegedly forwarded several emails by Steinberg and others that contained insider information.[7]

Foundation

CIO 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 during the insider trading blowup, in late 2014, naming the fund after his late grandfather who was a small-business owner.[1] He raised nearly $1 billion.[8][9] CIO Gabe 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”.[10] He also said that the fund has an "intense focus" on the short side (i.e. short selling).[10]

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.[11][12]

In 2017, the fund finished up 41%.[13] Current notable investments include Chewy.com, Amazon.com, Las Vegas Sands, Alibaba, and shorting GameStop.[14]

According to The Wall Street Journal, about one-third of the gains in 2019 from Steve Cohen's current hedge fund, Point72, came from Melvin Capital Management LP.[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).[16][17] They gained considerably due to the problems faced during the launch of Cyberpunk 2077.

2021 losses

See also: GameStop short squeeze

In early 2021 the fund lost over 30% due to numerous short bets that went awry, including GameStop.[18] Users of the subreddit r/WallStreetBets made widespread bets that GameStop's stock would increase in value.[19] In January, Ken Griffin's Citadel and Steve Cohen's Point72 invested $2.75 billion in Melvin in exchange for non-controlling revenue shares of the fund.[18][20][21][22] CNBC's Andrew Ross Sorkin reported that fund manager Gabriel Plotkin advised 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 contended that rumors of the fund intending to file for bankruptcy are false.[23][24] On January 27 Bloomberg News reported that losses had continued past the 30% reported on January 24 by the WSJ although their sources would not give a specific number as to not upset CIO Gabe Plotkin.[25] The fund had also repositioned its portfolio according to the source.[25]

The short position adopted by Melvin Capital and others resulted in more than 139% percent of existing shares of GME being shorted, making GameStop stock the most shorted equity in the world.[26] Through the end of January 2021, the fund was down 53%, according to The Wall Street Journal.[2] In February, Melvin posted a 22% gain; even with this addition, Melvin will need to produce an additional 75% gain for earlier clients before they break even.[27] At the end of Q1 2021, Melvin reported losses of 49%.[3][4]

Legal issues

Subsequent to the GameStop short squeeze event, Melvin Capital disclosed that it is the target of at least nine lawsuits relating to its behavior during that period.[28] Allegations include 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 contends that these lawsuits are "without merit."[28]

Executives

The fund is 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.[29] In December 2020 Plotkin purchased 2 adjacent houses in Florida for $44 million.[30] Plotkin purchased a minority interest in the Charlotte Hornets in 2019 from Michael Jordan.[31] According to Bloomberg, during 2020 Plotkin earned over $800 million in compensation.[32] However, during January 2021, he reportedly lost $460 million due to his funds collapsing.[32] David F. Kurd is 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. ^ 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.
  3. ^ a b "Plotkin's Melvin Capital Extends First-Quarter Losses to 49%". Bloomberg.com. April 9, 2021. Retrieved April 10, 2021.
  4. ^ a b "Plotkin's Melvin Capital Extends First-Quarter Losses to 49%". uk.finance.yahoo.com. Retrieved April 10, 2021.
  5. ^ 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.
  6. ^ "Senior manager at SAC Capital indicted for fraud". InvestmentNews. July 19, 2013. Archived from the original on January 26, 2021. Retrieved January 27, 2021.
  7. ^ 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.
  8. ^ 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.
  9. ^ 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.
  10. ^ a b "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.
  11. ^ Foxman, Simone (February 23, 2016). "This SAC Alum Stands Out in Hedge Fund Rankings". Bloomberg News. Retrieved July 15, 2019.
  12. ^ "Hedge fund rankings 2015". Bloomberg. February 29, 2016. Retrieved July 15, 2019.
  13. ^ 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.
  14. ^ "Melvin Capital - Current Investments". Fintel.io. Archived from the original on February 5, 2021. Retrieved October 10, 2019.
  15. ^ 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.
  16. ^ "Archived copy". Archived from the original on January 22, 2021. Retrieved September 24, 2020.CS1 maint: archived copy as title (link)
  17. ^ "Archived copy". Archived from the original on October 31, 2020. Retrieved October 27, 2020.CS1 maint: archived copy as title (link)
  18. ^ 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.
  19. ^ 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.
  20. ^ 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.
  21. ^ 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.
  22. ^ "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.
  23. ^ 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.
  24. ^ Watts, William. "Hedge fund Melvin Capital closes out GameStop short: CNBC". MarketWatch. Archived from the original on February 5, 2021. Retrieved January 27, 2021.
  25. ^ 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.
  26. ^ 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.
  27. ^ Burton, Katherine; Parmar, Hema (March 4, 2021). "Melvin Capital Dusts Off From GameStop Fiasco With 22% Gain". MSN. Bloomberg. Retrieved March 5, 2021.
  28. ^ a b Celarier, Michelle (March 22, 2021). "Melvin Capital Is Facing Nine Lawsuits Related to the GameStop Frenzy". Institutional Investor. Retrieved March 23, 2021.
  29. ^ "Gabriel Plotkin". Forbes. Archived from the original on January 27, 2021. Retrieved January 27, 2021.
  30. ^ 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.
  31. ^ 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.
  32. ^ 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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