- Melvin Capital will shut down and liquidate its entire portfolio
- During the first quarter, the hedge fund lost 23%
- Melvin’s downfall began with its GameStop (NYSE:GME) short last year
Once a darling of Wall Street, Gabe Plotkin’s Melvin Capital announced that it would shut down and liquidate all of its positions. At the end of April, the hedge fund had $7.8 billion in assets in management (AUM), down from $12.5 billion at the start of 2021. For the first four months of the year, the firm’s portfolio reportedly declined by 23%.
This year’s losses add on to the hedge fund’s losses from 2021. In January, Melvin suffered a massive 53% loss due to its GameStop (NYSE:GME) short position. Accordingly, the hedge fund became a target for retail investors who congregated on Reddit’s r/WallStreetBets to discuss their investment strategies. However, the fund recouped some of its losses and ended 2021 down 39%.
Now, it appears that Plotkin is finally admitting defeat. In a letter to shareholders, the fund manager stated that:
“The past 17 months has been an incredibly trying time for the firm and you, our investors. I have given 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.”
With that in mind, let’s get into the details of the Melvin Capital shutdown.
Melvin Capital Liquidates Its Portfolio: 7 Things to Know
- A tweet from Market Rebellion states that Melvin has already completed its liquidation.
- In a shareholder letter, Plotkin stated that he had already raised a “substantial amount of cash.”
- Earlier this month, Plotkin talked about a plan to return external capital to clients, while giving them the option to reinvest in a new fund with lower fees. He has since scrapped that plan.
- The hedge fund’s largest position as of Q1 was Live Nation Entertainment (NYSE:LYV). Melvin owned a 4.8 million share stake worth $565 million at the end of Q1.
- The fund’s second-largest position was Hilton Hotels (NYSE:HLT). Melvin owned a 3.2 million share stake worth $484 million.
- As a result, Melvin’s liquidation may have contributed to the volatile price action of stocks in its portfolio in recent days.
- Plotkin isn’t the only prominent hedge fund manager having a difficult year. Chase Coleman’s Tiger Global has reportedly lost 44% in the first four months of the year.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.