BAILED: Citadel and Point72 to Provide $2.75 Billion for Melvin Capital
Posted on 01/25/2021
Hedge fund Melvin Capital had suffered massive losses on its shorts and margin calls. Melvin Capital is set to receive a US$ 2.75 billion capital injection from hedge fund giants Citadel and Point72 Asset Management and other investors. Citadel put it in US$ 2 billion, while Point72 put in US$ 750 million.
Melvin Capital founder Gabriel (Gabe) Plotkin is a former portfolio manager who worked for Steven Cohen (then SAC Capital Management). The loan investments are in the form of non-controlling revenue shares in the hedge fund. According to the Wall Street Journal, Melvin Capital lost 30% in just the first three weeks of 2021. The hedge fund started 2021 with US$ 12.5 billion in assets under management.
Melvin Capital got crushed on its short position in GameStop. Founded in 2014, Melvin Capital’s principal objective for its Clients’ is to generate superior, risk-adjusted returns by employing a long-short equity strategy. From SEC data on September 30, 2020, Melvin Capital had large puts in Elanco Animal Healthcare, Wynn Resorts Ltd, iRobot Corp, National Beverage Corp, Gamestop Corp., American Eagle Outfitters, Dillards Inc., Ligand Pharmaceuticals, Martin Marietta Materials, Advance Auto Parts, Bed Bath & Beyond, Inc., Mylan NV, and GSX Techedu. This named stocks is not a complete list of puts.
Generation-Z (Gen-Z) retail traders, who use apps like Robinhood, have steamrolled some hedge funds and hedge funds with extensive “short exposure”. Bloomberg reports that one trader in the Reddit group turned US$ 53,566 into more than US$ 11 million. Gamestop short-sellers lost US$ 1.6 billion in a single day.