Melvin Capital’s CEO Gabe Plotkin has been weighing out the option with investors on closing a current fund by June of this year. In closing a current fund, Melvin Capital would then allow investors the opportunity to reinvest their capital into a new fund that would take its place.
The current fund in jeopardy of being closed was down 39% last year and was down 21% at the end of the first quarter this year. The persistent losses over the last 18 months with the fund may be more than enough reason for Plotkin to wind it down and start fresh with a new fund — as we know Melvin Capital has been hit hard this last year with significant losses as well as other hedge funds.
Point72 founder Steven Cohen is among the investors who are being given the opportunity to jump ship from the current fund and reinvest their capital into the new fund, which would be focused on shorting stocks. As of now there, it seems there is not a clear consensus of the investors reaction to the proposal. We do know that Melvin Capital has been struggling over the last year and popular meme stock GME short positions caused Melvin Capital damaging losses in 2021.
If the current fund closes, investors would be granted the opportunity on July 1st to reinvest as much or as little as they want into the new fund. It’s hard to say what faith investors will continue to have in Plotkin’s new fund, as Melvins poor performance has been seemingly an ongoing issue.
The proposal supposedly would have a high-water mark, which would mean that Plotkin would bring investors back to their capital that was invested before earning a performance fee. The high water mark ensures that hedge fund managers do not collect large payments for poor performance. It’s speculated that Plotkin would keep the new fund at or below $5 billion in capital and charge performance fees of 15-25%.
While Plotkin was once known for his expertise in making profit from shorting stocks, recent data shows that Melvin Capital has been struggling over the last year and a half, specifically due to the GameStop (GME) meme stock frenzy. If the proposal of the new fund is accepted, it will allow Plotkin and his company an opportunity to redeem themselves to their investors.