“In reflection on the first half of the year, it is clear we underestimated the impact of rising global inflation and entered 2022 with too much exposure,” Tiger Global told investors. But is this truly the reason for the firm’s poor performance.
Tiger Global isn’t the only hedge fund that is dealing with bad performance as of the last few quarters though, Melvin Capital completely closed their fund not too long ago.
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.
Tiger Global along with Melvin are now sitting on bad bets across the markets which are making already worried investors even more concerned for the future and their returns.
Tiger Global’s public stock funds managed $35 billion at the end of last year, per the Financial Times.
This brings the funds losses at around 18 billion in total, or around 64% which is shocking even to the riskiest of investors.
What is even more alarming for these hedge funds that are down double, and almost triple digest losses is the amount of gains they would need to make back their original investment principal. If a fund is down over 60% for example, they are going to need to make insane gains in the market JUST to get back to where they started. This makes it extremely stressful for traders inside the fund and of course for investors which have their capital in harm’s way.