Melvin Capital, the hedge fund hurt by GameStop, said to wind down:
Melvin Capital, the hedge fund that was pummeled by the GameStop (GME) short squeeze last year, is said to plan to wind down.
Melvin, run by Gabe Plotkin, plans to shut down and return cash to investors, according to media reports from Bloomberg and CNBC. Melvin's assets were $7.8 billion as of the end of last month with the majority in the hedge funds.
The news comes after reports last month that Melvin was going to try to salvage the fund by starting a new fund with the money his investors decided to reinvest, though the plan was nixed after getting negative feedback from investors, according to media reports.
"The past 17 months has been an incredibly trying time for the firm and you, our investors," Plotkin wrote in a letter seen by Bloomberg. "I have given everything I could, but more recently that has not been enough to deliver the returns you should expect. I now recognize that I need to step away from managing external capital."
(Score: 5, Interesting) by Phoenix666 on Monday May 23 2022, @12:31PM (5 children)
The stated assets are probably not what the hedge fund actually has. It's probably the value of its leveraged positions. Their actual capital might be $500 million or less; hedge funds typically leverage their capital many times to the dollar. Long-Term Capital Management, the hedge fund run by Nobel Prize winning economists and that guy Merriweather from the junk bonds days had leveraged their capital by hundreds of times before the East Asian Financial Crisis caught them out.
If Melvin Capital did have as much capital as the article states they'd surely be able to keep operating. Even if a couple of the pension fund managers and high net worth individuals who invest in hedge funds were threatening to pull their money Melvin Capital itself would likely keep going after firing the CEO.
It's doubtful that the GameStop episode was enough to collapse the fund, as amusing and delicious as that was.
Washington DC delenda est.
(Score: 4, Touché) by janrinok on Monday May 23 2022, @12:32PM
True, but it sure helped.
(Score: 3, Interesting) by JoeMerchant on Monday May 23 2022, @01:24PM (1 child)
I forget the movie, but the quote is: "The stock market is brilliant: unlimited upside, you can only lose what you put in but you can make it back hundreds of times over."
Combined with bankruptcy laws that let the losers welsh out on their debt, it's a formula for the rich to get many times richer. Not rich enough to get a loan? Too bad, so sad, your fault for being poor in the first place.
🌻🌻 [google.com]
(Score: 3, Insightful) by Anonymous Coward on Monday May 23 2022, @07:24PM
I guess the lesson to learn here is don't take investment advice from movies. This statement is simply not true for short positions -- in principle there is no limit to how much you can lose. If you have to close your position in a hurry you can be forced to buy some number of shares at whatever the current market rate happens to be. In the case of gamestop last year people literally needed to buy more shares than were available on the market in order to do so, which will drive the price upward essentially without bound (at least until powerful people start interfering with the market).
(Score: 2) by sjames on Monday May 23 2022, @07:19PM (1 child)
Gamestop probably isn't the only vulnerable position they have taken, it's just the one they got caught in. I'm guessing that they have realized that by the time they unwind some of those positions there won't be much left.
(Score: 0) by Anonymous Coward on Tuesday May 24 2022, @07:32AM
More importantly it looks like their stakeholders finally caught on and want out.
(Score: 5, Interesting) by janrinok on Monday May 23 2022, @12:31PM (3 children)
The GameStop event last year was just regular guys like most of us here deciding that the big boys shouldn't be telling us what we can and cannot do. We were told that we weren't supposed to play with stocks and shares as we were not 'good enough'. Reddit created a Traders discussion and the rest became folk legend. It hurt them when so many people showed that, indeed, we could play with their toys. The likes of Melvin Capital had to break their own rules to prevent the little guys from achieving much more than they did.
It wasn't a temporary victory - as this report indicates. I only hope that Plotkin has lost some of his own money and not just that of the investors who supported him - well, supported him until they didn't any longer.
It probably will not result in any long-term changes to the game, but they might think twice before ignoring the views and opinions of others before they try something similar again.
(Score: 4, Interesting) by FatPhil on Monday May 23 2022, @12:57PM (2 children)
Great minds discuss ideas; average minds discuss events; small minds discuss people; the smallest discuss themselves
(Score: 3, Touché) by maxwell demon on Monday May 23 2022, @02:35PM
On the other hand, a poor person doubling their money would correspond to a super-rich losing some pocket money he won't even notice.
The Tao of math: The numbers you can count are not the real numbers.
(Score: 1, Touché) by Anonymous Coward on Monday May 23 2022, @06:38PM
It is true that the little guys diamond-handing lost some money, which was obvious going in, but how much do you spend on entertainment?
(Score: 1, Interesting) by Anonymous Coward on Monday May 23 2022, @10:07PM
>> I now recognize that I need to step away from managing external capital.
"I have transferred as much of your money as I need to a tax haven with no extradition treaty. So long, suckers."
(Score: 0) by Anonymous Coward on Monday May 23 2022, @11:40PM
Lesson learned: Do not Fuck with Video Games.
You just don't do it.