Bloomberg
Melvin Capital hides GameStop fiasco with 22% setback
(Bloomberg) – Gabe Plotkin spent the first half of January defending the portfolio of his hedge fund against Reddit, while the second half tried to convince investors that he could survive a 53% loss, and in early February to the Congress explains what happened. as the public spectacle declines, the most concrete sign is yet to emerge that its Melvin Capital Management could possibly make it thrive anew. After adjusting the strategy, Plotkin made a nearly 22% profit in February, about eight times the return of the S&P 500. Thus begins the most difficult part of the 42-year-old hedge fund manager’s attempt to climb out of the hole that January ‘s collision, in which retail investors arranged on social media to buy shares such as GameStop Corp. which Melvin and others bet, to drop. The episode cost its investors – including billionaire Steve Cohen, Brown University and the Robin Hood Foundation – more than $ 6 billion, but even with the rebound, Plotkin’s fund, which had $ 8 billion in early February, will ‘ an additional 75% profit for former customers before they break even. Customers who have been stuck or stacked at the company bet that he will be able to do so given his record, which has considered him one of the best stock voters so far this year. The performance of the past month was particularly welcome for investors who decided to raise a combined amount of $ 250 million in early February, which would probably be seen as an opportunity to increase their exposure to a hedge fund closed for new capital, to enlarge. The trust follows an investment in late January by Ken Griffin, his partners and his Citadel hedge funds, and Cohen’s Point72 Asset Management, which together gave the company $ 2.75 billion in exchange for a minor stake in Melvin income of three years. The agreement was reached within a few hours. Plotkin said in his testimony to the House Financial Services Committee last month that Griffin had issued him and that the cash injection was not an emergency rescue operation. doubles because they have confidence in his trading prowess and personally like Plotkin, who is known for being family-oriented and relatively handsome in an industry famous by the throat. Wagers He is also a confident risk taker. Since his days in Cohen’s shop, Plotkin has been known for taking great positions on the long and the short side. From his recent actions, it appears that January did not damage his ability to make money, but that he changed his input on stocks he expects to tumble and said in his testimony that he would avoid shorts. A person familiar with his strategy said he would also take smaller positions to limit exposure to single companies. And Plotkin has told its team of data scientists to search social media and message boards to look for stocks that attract small investors. He stopped using stock exchanges that appeared on his quarterly submission to the Securities and Exchange Commission – clues This allowed his firm to be singled out by the Reddit crowd. Some hedge fund observers question whether Plotkin will still be able to deliver returns without major short positions. In Melvin’s first trading year, 70% of the fund’s profit came from its clumsy bets. Plotkin, who grew up in a middle-class family in Portland, Maine, did not start his money management career in a flash. Early on, he landed at Griffin’s Citadel, hired to evaluate new ventures rather than take a more sought-after investment position. After a year, he jumped to Greenwich, North Sound Capital, Connecticut, where he was a consumer stock analyst for two years, with limited trading authorities. In 2006, he got a job at Cohen’s predecessor SAC Capital Advisors, and within five years he had managed more than $ 1 billion in consumer-related stocks. He was just a handful of executives at the Stamford business in Connecticut with such a large portfolio. Cohen’s HelpInside SAC was one of the largest money makers, known for scrutinizing companies in which he invested, former colleagues said. He used detailed models to analyze everything from cash flow to product demand, rather than relying on market information from brokers. He was also an early user of credit card information. Plotkin announced he would leave Cohen’s firm in early 2014 to start his own store, just months after SAC pleaded guilty to security fraud and paid a record fine to resolve complaints in the US. the government’s six-year repression of insider trading. Plotkin, who was not charged with any offense, was among several senior portfolio managers to quit. As part of the settlement, Cohen would for a time only manage his own money, thus reducing the amount of cash that had to be distributed among portfolio managers. By December, Plotkin was on the move at Melvin. He named the firm after his grandfather who ran a convenience store and imitated the work ethic and integrity he wanted in his own business. Plotkin raised nearly $ 1 billion, including about $ 200 million from Cohen’s firm, now called Point72. His only underage year was in 2018, when he lost 6%. Over the next two years, its yield was about 50%. Overall, he posted an annual return of about 30% from its inception in 2014 until last year. Plotkin declined to comment on this article, but during his testimony from the House, he expressed confidence that he would turn “We will adjust,” he said. “The whole industry will have to adapt.” For more articles like this, feel free to visit us at bloomberg.com. Sign up now to stay ahead of the most trusted business news source. © 2021 Bloomberg LP