Citadel LLC and Point72 Asset Management are investing $ 2.75 billion in hedge fund Melvin Capital Management, which was badly hit by a series of short bets at the beginning of the year.
Cash inflow is expected to help stabilize Melvin, which has lost 30% by 2021 through Friday, people familiar with the company said. Melvin started the year with $ 12.5 billion and has been one of the top-performing hedge funds on Wall Street in recent years. The losses stem from Melvin’s string of short bets against companies and have stunned customers and other traders. In addition to other short positions, Melvin bet on the rising inventory of video game retailer GameStop Corp.
Citadel and its partners are investing $ 2 billion and Point72, which had already invested more than $ 1 billion in Melvin as of 2019, $ 750 million. The investments are in Melvin’s fund and include non-controlling income shares in the company. Melvin Founder Gabe Plotkin was a top portfolio manager at Point72’s predecessor, SAC Capital Management, before leaving to found Melvin.
It could not be determined how much of a revenue share Citadel and Point72 would get.
Melvin was down about 15% for the year until late last week, but heavily short-short stocks went up on Friday. The Goldman Sachs Group Inc. basket of the 50 stocks with the highest short-term interest rates as a share of market capitalization, soared Friday, bringing earnings for the year to 25%. In comparison, the S&P 500 had gained 2.4% in that period. Unlike many other hedge funds, Melvin has an extensive and aggressive short book.