web analytics

Here’s what Melvin Capital founder Gabe Plotkin told investors as he liquidates his $7.5 billion hedge fund

  • Gabe Plotkin told investors Wednesday that he was closing his hedge fund.
  • Melvin Capital managed $7.5 billion in the fund, which was down 23% through April.
  • Plotkin last year was the target of Reddit traders who piled into his short bets, like GameStop.

Sixteen months after suffering an unprecedented retail-trader-driven short squeeze, Gabe Plotkin is shutting down his $7.5 billion hedge fund, Melvin Capital.

Plotkin, a onetime industry star who previously ran money for the billionaire Steve Cohen, was down 23% this year as markets moved away from the growth stocks he and other hedge funds rode to fame and fortune.

In a letter to investors seen by Insider, Plotkin said he gave “everything I could, but more recently that has not been enough to deliver the returns you should expect.”

“I now recognize that I need to step away from managing external capital,” the letter added.

The winding down of the portfolio is already underway, he wrote, and the firm will not charge management fees after June 1. 

“I am grateful for the trust that you have placed in me and our team. I am available over the coming weeks to answer any questions you may have,” he wrote, ending the letter. Bloomberg first reported that fund was closing.

Plotkin’s disastrous start to 2021 — when he lost billions in a matter of days as retail traders pumped up his various short bets, most notably GameStop — was a shocking turn for what many people considered to be one of hedge funds’ golden boys. His fund, named after his grandfather, made an average of 30% annually before the Reddit trading frenzy and still finished with an average annual return of 11.9% after the past year and a half, according to a person familiar with the fund’s performance. 

The success of the fund, which was backed by Cohen, provided Plotkin with serious personal wealth as well. He is a minority owner of the NBA’s Charlotte Hornets and bought a massive multimillion-dollar property in Miami Beach right before the short squeeze.

Because of the rough start to last year, when Melvin finished down 39% overall, the firm was going to have to dig out of a deep hole to ever charge longtime investors performance fees again. At many hedge funds, investors pay performance fees only when the firm makes money above its high-water mark, or its highest level of performance.

Melvin attempted to reorganize its fund offerings to create a new, smaller hedge fund earlier this year, but investors revolted because they did not want to start paying performance fees to a manager who had lost them money. Now, the firm is returning its investors’ capital and shutting down.