Hedge fund giants Steve Cohen and Ken Griffin join forces to rescue a fellow trader whose positions in runaway stocks like GameStop are being hammered.
Griffin’s Citadel and Cohen’s Point72 Asset Management are jointly investing $ 2.75 billion in Melvin Capital Management, which has seen its recent bets on stock declines thwarted by a small army of investors with get-rich-quick dreams.
The fund, led by ex-Cohen Lieutenant Commander Gabe Plotkin, is down 30 percent, the Wall Street Journal reported.
The bailout comes as retail investors swarm online forums like Reddit board “wallstreetbets” to incentivize each other to invest in cheap stocks with short positions against them through free trading sites like Robinhood.
GameStop, which Plotkin is betting against, had a short-interest rate of 102 percent of its outstanding stock on Friday, making it a prime target to send a stock higher through what is known as a short squeeze.
Shares in GameStop were up about 178 percent between Thursday’s close and early trading Monday, as investors looked for short sellers like Plotkin and Andrew Left, who last week complained they were under threat over his predictions that the stock would fall.
“He was short in a market where people could no longer stay short,” lamented one hedgie. Today you take a stand after you do the work, then some guys on Reddit use their phones to buy penny stocks and your face gets ripped off. It’s crazy. “
“I have known Gabe Plotkin since 2006 and he is an exceptional investor and leader,” said Cohen, who will add $ 750 million to his existing investment in the fund. “We are delighted to have the opportunity to invest additional capital and take a minority stake in Melvin Capital.”
Melvin Capital saw a profit of 47 percent in 2019 after losing money in 2018. About a third of Point72’s performance in 2019 comes from its $ 1 billion stake in Melvin.
Griffin and Cohen have fought openly for the talent trade in the past, with Griffin once hiring and then firing Cohen’s brother-in-law at Citadel.
But Plotkin – and hopes he will recover from the chaos – seems to have united the two men.
“Gabe Plotkin and team have delivered exceptional results in Melvin’s history,” Griffin said in a statement to The Post after confirming that Citadel and its partners will be pumping $ 2 billion into Melvin’s books. “We have a lot of faith in Gabe and his team.”
“When Ken Griffin gives $ 2 billion to Gabe Plotkin, he’s not doing it to be a nice guy,” said another hedge fund manager. “He clearly thinks Plotkin will bounce back.”