Citadel LLC and Point72 Asset Management are investing $ 2.75 billion in the hedge fund Melvin Capital Management, which was hit hard by a series of short bets earlier this year.
Cash flow is expected to help stabilize Melvin, which in 2021 lost 30% by Friday, said people familiar with the company. Melvin started the year with $ 12.5 billion and was one of the best performing hedge funds on Wall Street in recent years. The losses stem from Melvin’s series of short bets against companies and have surprised customers and other dealers. Among other short positions, Melvin bet against the growing stock of video game retailer GameStop Corp.
Citadel and its partners are investing $ 2 billion and Point72, which already had more than $ 1 billion invested in Melvin in 2019, $ 750 million. The investments are in the Melvin fund and include stakes in the company’s non-controlling interests. Melvin’s founder, Gabe Plotkin, was one of the main portfolio managers of Point72’s predecessor company, SAC Capital Management, before leaving to found Melvin.
It was not possible to determine how much of the revenue share Citadel and Point72 would get.
Melvin had fallen about 15% in the year by the end of last week – but the heavily sold shares soared on Friday. The basket of the 50 shares of Goldman Sachs Group Inc. with the largest open interest as a market capitalization share soared on Friday, bringing its gains for the year to 25%. In comparison, the S&P 500 had gained 2.4% in the period. Unlike many other hedge funds, Melvin has an expansive and aggressive short book.