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Melvin Capital closes fund and returns cash to investors

Melvin Capital plans to close its funds and return cash to investors, curbing a spectacular reversal of the company. It was greatly lost upon Rapid increase in meme stocks Bet on growth stocks last year and this year.

In a letter to investors reviewed by The Wall Street Journal, Melvin’s founder Gabe Protokin, after consulting with Melvin’s board of directors during the months’ process of reassessing his business, he Wrote that the decision was reached.

“The last 17 months have been an incredible challenge for you as a company and an investor,” he writes. “I’ve done everything I can, but these days it wasn’t enough to bring the expected benefits. I now realize that I need to move away from managing external capital.”

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Melvin was one of the best hedge funds until last year. After the highest fees on Wall Street before 2021, it has a track record of about 30% annually. In particular, he was known for his stock shorts and betting skills. In 2015, profits from Melvin’s shorts accounted for two-thirds of the 67% return on the pre-commission fund. Protokin bought a $ 44 million oceanfront mansion in Miami Beach, in addition to a minority stake in the National Basketball Association Charlotte Hornets.

However, Melvin’s short position exploded in January 2021 when individual investors in online forums exploded: Reddit’s Wall Street Bets United together to push up the price of stocks like

GameStop Ltd.

, Melvin was betting.. At the worst of the month, Melvin, who managed $ 12.5 billion earlier last year, was bleeding more than $ 1 billion a day.

Melvin had made up for some of these losses by the end of the year, but by focusing on fast-growing companies, investors faced such stocks, further retreating this year. Rising interest rates..Stock pickers also blamed this year’s losses for macroeconomic factors Like inflation And that War in Ukraine have On the market, Instead of company-specific fundamentals. Melvin’s losses have increased.

From this year to April, Melvin lost 23% in addition to the 39.3% loss in 2021. If Protokin didn’t shut down tentatively, the huge holes that investors expected could take years to make up. Since its inception, it has averaged 11.9% revenue.

Still, some investors on Wednesday said they were surprised at the decision.

Melvin executives last week asked clients what new pricing arrangements seemed fair to them and Melvin, people familiar with the company said. April Protokin is from Melvin So-called highest benchmark, A standard industry arrangement where hedge funds do not collect performance fees until the client is complete from a previous investment loss. This proposal was part of a broader restructuring effort that partially meant maintaining and motivating his team, but faced resistance.

Some investors were very keen on the proposal to plan to redeem all their money on the first occasion. Protokin withdrew his plan A few days later, he apologized to investors and said he would consult with all of Melvin’s customers while Melvin was looking for a new path.

Investors shared various proposals that Protokin considers fair, such as maintaining current conditions until the end of the year and implementing a modified benchmark that will allow Melvin to collect lower performance fees. Was there. He said he was familiar with the company.

In his letter, Protokin wrote: We are proud of what our team has achieved since 2007. “

He wrote that he expects to return almost all of the client’s money by late July. Company-wide, Melvin managed $ 7.8 billion as of April.

Write to Juliet Chung juliet.chung@wsj.com

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It was published in the printed version on May 19, 2022 as “Melvin To Close Funds, PayBack Investors”.

Melvin Capital closes fund and returns cash to investors

Source link Melvin Capital closes fund and returns cash to investors

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