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GameStop saga: Hedge fund Melvin Capital gives up


The hedge fund Melvin Capital bet massively against the stock of the game chain GameStop - and probably lost billions. More than a year later, the founder is now dissolving the fund.

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GameStop branch in St. Louis

Photo:Jeff Roberson/AP

Probably the most prominent victim of the GameStop trading saga, the hedge fund Melvin Capital, is being dissolved.

More than a year after loosely organized hobby investors had boosted the video game provider's share price to astronomical heights, the fund founder Gabe Plotkin announced the end in a letter to customers.

The Financial Times reported first.

The letter said the past 17 months have been "an incredibly challenging time" for the company and investors.

Plotkin gave it his all, but failed to generate the profits his customers expected.

Plotkin announced that he no longer wanted to manage outside capital.

Celebrity Loser

Melvin Capital was one of GameStop's most prominent short sellers.

The fund had bet with the assets of its investors that the company's price would fall - a bad starting position when the price shot up by 2,400 percent in January 2021.

The triggers are small investors who had loosely organized on the Reddit forum "WallStreetBets" to move the price of GameStop papers up and corner short sellers like Melvin Capital in the so-called "short squeeze".

Institutional investors also benefited, in some cases massively, from the volatility in prices.

Prior to the GameStop saga, Melvin Capital said it had around $12.5 billion under management.

Overall, Melvin Capital is said to have made a loss of around 55 percent in January 2021 alone.

High losses

But even after the fiasco, there were prominent supporters: several funds, including Citadel and Point72 from investor Steve Cohen, invested a total of $2.75 billion in Melvin Capital.

Some of GameStop's losses were recovered by Plotkin's funds during the remainder of the year.

However, the year 2022 brought slumps again: in the first four months alone, Melvin Capital lost more than 23 percent of its value.

Plotkin founded Melvin Capital in 2014 and was considered a talented investor.

In 2020 he had made profits of around 30 percent.

The fund is not the first victim of the short squeeze at GameStop: The hedge fund White Square Capital announced its closure in June 2021.


Source: spiegel

All business articles on 2022-05-19

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