Melvin Capital weighs dismantling current fund to start new: sources

Gabe Plotkin, chief investment officer and portfolio manager at Melvin Capital Management LP, speaks at the Sohn Investment Conference in New York on May 6, 2019.

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Melvin Capital, the embattled hedge fund run by Gabe Plotkin, its onetime high-flying founder, has been discussing a novel plan with its investors under which the firm would return their capital, while giving them the right to reinvest that capital in what would essentially be a new fund run by Plotkin.

Under the terms being discussed, Plotkin would unwind his current fund at the end of June. That fund was down 21% at the end of the first quarter.

Plotkin would then start what would be essentially a new fund on July 1 with whatever money his investors chose to reinvest, but he would do so without having those investors rematch their invested capital before he could earn a performance fee.

This so-called high water mark, which requires hedge fund managers to return their investors’ capital at par before earning fees, makes it virtually impossible for Plotkin to meet much of the capital in Melvin, given the fund’s losses from the 39% last year. and at least 21% so far this year.

Plotkin, according to people familiar with his plans, vowed to keep his “new” fund at a capital of $5 billion or less and refocus on shorting stocks, a talent he was known for many years before he left. suffer significant losses. during the meme stock craze of early 2021.

The plan would essentially give Plotkin a break after 18 months of very poor performance, allowing him to keep his employees, many of whom might choose to leave due to a lack of performance fees to pay them.

The Melvins’ strong record of success, prior to their recent awful performance, was often due to Plotkin’s ability to make significant profits by shorting shares. But as the bottom of him grew in size, that ability was silenced.

Investors, including Point72 founder Steven Cohen, are presented with the opportunity to have Plotkin manage their money in a smaller fund focused on his strength in shorting stocks, but forever giving up the Hope you work for them. go back to even in the current backgrounds of him.

It’s unclear how that plan will be received and how much capital Plotkin’s investors will be willing to reinvest with it.

While several well-known hedge fund managers, faced with onerous caps, chose to close and then reopen a new fund as soon as a year later, this would be a one-time transition from one fund to another with the immediate removal of the high water mark.

Representatives for Plotkin could not be reached for comment, and Point72 officials declined to comment.

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