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Badly burned in meme stocks a year ago, Melvin Capital Management LP has lost over $1 billion in 3 weeks to start 2022.
The Wall Street Journal reports a 17% percent loss over the period. Since Melvin began 2021 at $12.5 billion under management and lost 39% last year, this year’s 17% loss amounts to about $1.3 billion.
Given that (inexplicably) more people invested in Melvin last year and few redeemed, the losses could be even greater and may have reached $2 billion.
Melvin seems to have learned little from its experience last January:
At the worst point in January 2021, Melvin Capital Management was losing more than $1 billion a day as individual investors on online forums such as Reddit banded together to push up prices of stocks Melvin was betting against. “We were in a terrible position. Stared death in the face,” Mr. Plotkin told employees in a Zoom meeting late that month. “But we’ve made it through.”
The damage, though, was severe. Melvin’s loss that month was 54.5%, or roughly $6.8 billion, one of the swiftest and steepest declines for a hedge fund since the financial crisis of 2008.
Despite the market turmoil, other hedge funds did far better, as did market indices:
For the full year, Melvin was down 39.3%, but far below the average 11.9% gain for stock-picking hedge funds, according to industry-research firm HFR. The total return of the S&P 500, in comparison, was 28.7%.
Would you rather pay high fees for Melvin to lose 40% of your money, or almost nothing for Vanguard to make you 30%?
Two other hedge fund kingpins, Ken Griffin of Citadel LLC and Steve Cohen of Point72 Asset Management LP have also been stung by these losses.
They invested $2.75 billion in Melvin last year for a piece of its fees. But those management fees are likely just $150-200 million a year in total currently, with no juicy performance fee.
Looks like they backed the wrong horse.
The bottom line is Gabe Plotkin is inept and has no business running other people’s money. To his investors, I suggest you get out while you still can.
There will be no blog on Monday. I have an acting gig!
See you on Tuesday, February 1st. Have a great weekend everyone! 🙂
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More on markets:
Engineering an AMC Short Squeeze in Dark Pools
Citadel Can’t Beat the S&P 500, Despite High Fees
Citadel Holding Nearly $500 Million in AMC Options
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9 thoughts on “Melvin Capital Loses $1 Billion in 3 Weeks to Start 2022”
Do you really believe Citadel and Point72 both decided basically over night to “invest” in a hedge fund that is failing at that very moment? Think! All three are heavily short on GameStop and the day Melvin was about to fail, the forced covering would have dragged Citadel and Point72 with them. They gave the money to Melvin to increase their margin, so the wouldn’t cover their short positions causing a real squeeze. They are all still short and try to hide it now.
Seems like a solid theory