Gabe Plotkin’s Melvin Capital is officially shutting down. After a rough year in 2021, when the hedge fund lost billions on their meme stock short positions of GME, to 2022 as the stock market is bleeding, the company is not able to recover from the detrimental losses and stay afloat. Plotkin wrote in a letter, “The appropriate next step is to wind down the Funds by fully liquidating the Funds’ assets and accounts and returning all cash to investors.”


This news is not all that shocking to retail investors, who have been speculating that the hedge fund was it deep waters for months now. The hedge fund was down more than 39% last year and was down another 20% in the first quarter of this year. Another red flag that came up was in early March, when Ken Griffin’s hedge fund Citadel pulled $2 billion from Melvin Capital. Citadel also experienced billions of dollars in losses from the GME meme stock short positions in 2021, but their withdraw from Melvin Capital seemed like a hint for what was to come. Not to mention when Gabe Plotkin recently wrote to investors letting them know he wanted to remove the high water mark, which did not go over well with his investors.

For Plotkin this realization of having to close down Melvin Capital must be devastating. Plotkin founded Melvin Capital in 2014. Prior to 2021 they had impressive gains. However in 2021, Plotkin and his team at Melvin, had bet against popular meme stocks GME and AMC Entertainment. While the hedge fund was confident that the meme stocks would decline, retail investors had a different outlook. Retail investors continued to buy and hold the meme stocks, and online communities formed through social media platforms like reddit and twitter, kept retail investors united which propped up the price of the stock. The short positions caused Melvin Capital to lose 53% in January 2021 and they were then bailed out 2.75 billion by hedge funds Point72 and Citadel. Even since then, Melvin has not been able to catch a break.


Since the current fund is closing, investors may be granted the opportunity on July 1st to reinvest as much or as little as they want into a new fund that may be opened by Plotkin if a proposal is accepted. It’s hard to say what faith investors would continue to have in Plotkin’s new fund, as Melvins poor performance has been seemingly an ongoing issue, and Plotkin’s reputation has been tainted with this significant loss.


Now that Melvin Capital has confirmed they will be closing down towards the end of June, investors can’t help but wonder which hedge funds or financial institutions will be next? Hedge funds have seen great losses from bad short positions and more recently the market downturn has been hitting them hard. On top of that, hedge funds have also been facing DOJ and SEC probes for suspicious trading activities and market manipulation tactics. We know that Citadel is one of the hedge funds that has been probed by the SEC and DOJ, along with financial institutions like Morgan Stanley and Goldman Sachs. It seems like it’s only a matter of time before other hedge funds come crashing down like Melvin Capital, but only time will tell. 

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