Gabe Plotkin, investment director and portfolio manager at Melvin Capital Management LP, spoke during the Sohn Investment Conference in New York, on May 6, 2019.
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The hedge fund at the heart of the GameStop saga gained more than 20% in February, recovering some of its losses from a brutal January, sources told CNBC’s Leslie Picker.
Melvin Capital, which previously made a big bet against the video game retailer, had a 21.7% return in February, according to sources. The fund fell 53% in January, during the dramatic sales squeeze that made GameStop and other stocks soar.
The company said in late January that it closed its short positions on GameStop as the shares rose. Melvin’s founder, Gabe Plotkin, was one of the people brought in to testify before Congress about volatile market movements, along with Citadel’s Ken Griffin and retailer Keith Gill.
Melvin received new investments in his fund during the turmoil, with Citadel and Steve Cohen’s Point72 injecting $ 3 billion.
Plotkin’s hedge fund, like many others, will operate sold against a company. Short selling is a strategy in which investors borrow shares of a stock at a certain price in the hope that the market value will fall below that level when the time comes to pay for the borrowed shares.
The high level of short positions in some stocks, including GameStop, has been noticed by traders on social media sites like Reddit’s WallStreetBets forum.
A wave of purchases at GameStop and other names has triggered compressions of discoveries, which is the phenomenon that occurs when short sellers buy stocks to cover their positions, forcing even higher prices. GameStop’s stock price fell from less than $ 20 to almost $ 500 before dropping dramatically.
Plotkin told the House Financial Services Committee last month that short sellers may have to change their strategies after retail traders appear to trigger a dramatic increase in some of their main targets.
“I think that we at Melvin are going to adapt and I think the whole industry will have to adapt,” said Plotkin.
Melvin Capital declined to comment on CNBC.
– Kevin Stankiewicz of CNBC contributed to this story.