Melvin Capital Kills “Tone Deaf” Plan To End High Water Mark After “Candid Response” From Investors
After receiving what he described as “candid thoughts” from initial investors, Melvin Capital Founder Gabe Plotkin has suddenly decided to abandon his plan to leave ‘underwater’ investors with massive losses and demand a ‘do over’ with fresh capital.
We can’t say we were surprised at his reversal (as the tweet below exclaimed) – though we admit to being somewhat shocked at the blind arrogance of his initial ‘plan’.
Hegde funds not only want to be paid 2 and 20 when 98% of them can’t outperform the S&P for 12 years in a row, but they now also want to be paid for losing money.
— zerohedge (@zerohedge) April 21, 2022
It is clear now that we were not alone as he infers from responses of his ‘day one’ investors, admitting in his letter to partners (below) that he was “tone deaf” with his intentions, and hadn’t taken sufficient consideration of investors’ losses. The letter claims that while he had “critical mass” to move forward with his ‘do-over’, he has decided – for the sake of “accountability” and his grandfather’s “highest ethical standards” that he would not be asking current investors to forgive all their losses,
Gabe Plotkin’s full letter to investors (emphasis ours):
To our fellow partners,
I am sorry. I got this one wrong. I made a mistake. I apologize.
As we noted in our letter last week, we tried to balance several objectives when determining a path forward. Our focus was on getting back to a size at which we could again generate industry leading returns for our investors while retaining the team we have built over a decade. After exploratory conversations with several investors, in which we had received positive feedback, we decided to move forward with the approach we outlined in our letter.
In hindsight and despite our intentions, we recognize now that we focused on future returns and team continuity without sufficient consideration of your investment losses. We appreciate how difficult January 2021 was for all of you and are pained that we have not acknowledged this enough. After numerous conversations with our investors on Thursday, Friday, and Saturday, it is clear to me that I was initially tone deaf.
I especially want to thank our day one investors for their candid thoughts. Some of you feel that we were not being a good partner. Upon reflection, you are right.
Integrity is a fundamental value at our firm. My grandfather, Melvin, after whom our firm is named, lived by the highest ethical standards, and he imparted those values to me. There is sufficient interest and critical mass to move forward with the plan laid out in last week’s letter. That’s now completely irrelevant to me.
At this time, our go-forward structure needs to be about partnership and principle. We are taking the next two to three weeks to process the input we have received from all our investors, and we will come back with a more balanced proposal that better aligns our collective interest.
I try to teach my kids that everyone makes mistakes, but ultimately it is about how you handle them. Accountability is critical. I got this wrong and for that I apologize to each of you.
CIO & Founder
So, reading between the lines, it appears, as noted last week, Plotkin’s cunning plan to “to lose other people’s money and then start a new fund to lose even more people’s money” is not going as planned.
Sun, 04/24/2022 – 19:00