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Struggling Melvin Capital may unwind current fund 14 months after GME short blew up in their faces

Melvin Capital was caught in the crosshairs of Reddit last year and never fully recovered from GME mania. The firm may be closing down their hedge fund.

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Embattled hedge fund Melvin Capital is reportedly in hot water again. The fund's leader Gabe Plotkin is kicking around an idea to save what remains of his investors' capital. Plotkin's Melvin Capital became well known last year for being caught short GameStop shares as the GME stock soared in January 2021. 

Gabe Plotkin's plan for the liquidated funds from his current fund is truly a sign of desperation. Melvin Capital's fund was down 21% in the first quarter of 2022. Plotkin is really looking for a second, second chance, after being bailed out with a capital infusion from Citadel in January of 2021. Ken Griffin's company decided to redeem $500 million of the $2 billion capital infusion.

Plotkin's plan is to offer investors in his previous failed fund to invest in a new fund focused on short-selling. This is a bold move, considering his previous hedge fund collapsed when GameStop ripped higher in January of 2021. Melvin Capital and countless other shorts were already given a second chance, when brokers and Robinhood suspended purchase orders on so-called meme stocks. 

Gabe Plotkin at his remote testimony before the House of Representatives hearing on GME.
Gabe Plotkin at his remote testimony before the House of Representatives hearing on GME.

GameStop is a fundamental story of a stock that had a short interest above 100% for an extended period of time, and Melvin Capital will always be the poster child of the GME Squeeze of 2021. The audacity of these failed hedge fund managers to continue to get opportunities to destroy more capital over and over again.

It remains to be seen if Melvin Capital's investors are willing to stick with Plotkin after his repeated failures. Gabe doesn't just suck at shorting stocks. His hedge fund owned $1.3 billion of Facebook stock in the fourth quarter of 2021, and it ended up losing them nearly 50% on the position. Facebook's Q4 earnings results were another hit to a fund that has been grossly underperforming the market for well over a year.

Gabe's new fund would kick off in summer 2022, when investors can choose to keep their money with Melvin Capital, or take their chips off the table.


This article is only meant for educational purposes, and should not be taken as investment advice. Please consider your own investment time horizon, risk tolerance, and consult with a financial advisor before acting on this information.

Full Disclosure:

At the time of this article, Shacknews primary shareholder Asif A. Khan, his family members, or his company Virtue LLC had the following positions:

Long GameStop via GME shares (partially-hedged with out-of-the-money put options)

Long GameStop via GME call options

Luminary

Asif Khan is the Luminary and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.

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