Gabe Plotkin, Chief Investment Officer and Portfolio Manager of Melvin Capital Management LP, spoke at the Sohn Investment Conference in New York on May 6, 2019.
Alex Flynn Bloomberg | Getty Images
Melvin Capital, the hedge fund managed by its former high-ranking founder Gabe Plotkin, is discussing a new plan with its investors to return their capital, while giving them the right to reinvest that capital in what would be essentially a new fund. ruled by Plotkin.
Under the terms being discussed, Plotkin will expand his current fund at the end of June. This fund fell 21% at the end of the first quarter.
Plotkin would then start something that would be essentially a new fund on July 1 with the money his investors decide to reinvest, but he would do so without having to return those investors even to their invested capital before to be able to win a performance fee.
This so-called high water brand, which requires hedge fund managers to return their investors’ capital to face value before earning fees, makes it virtually impossible for Plotkin to cover much of Melvin’s capital, given the fund’s losses of 39 % last year and at least 21% so far this year.
Plotkin, according to people familiar with his plans, has pledged to keep his “new” fund at or under $ 5 billion in capital and return to a focus on short stocks, a talent he was known for many years before suffering significant losses during the meme craze in early 2021
The plan will essentially allow Plotkin to do a job after 18 months of very poor performance, which allowed him to keep his employees, many of whom would otherwise choose to leave, given the lack of performance fees to pay them.
Melvins’ strong success story, before its horrific recent performance, is often due to Plotkin’s ability to make significant profits by shorting stocks. But as his fund grew, that ability was muted.
Investors, including Point72 founder Stephen Cohen, are looking forward to getting Plotkin a chance to manage his money in a smaller fund focused on his power to cut stocks, but they are giving up hope he will work to get them. back to their current resources.
It is unclear how this plan will be obtained and how much capital Plotkin’s investors will be willing to reinvest with it.
While a number of well-known hedge fund managers facing severe high water ratings have chosen to close and then reopen a new fund immediately after a year, this would be a unique transition from one fund to another with the immediate removal of the high water mark.
Plotkin’s representatives could not be reached for comment and Point72 officials declined to comment.
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