Steve Cohen Lost $500 Million From Melvin Capital Meltdown
Yesterday Bloomberg reported that the nightmare of the meme stock short squeeze haunted Melvin Capital throughout the first half. Gabe Plotkin’s hedge fund, which infamously suffered billions in losses during the initial Gamestop short squeeze at the start of the year orchestrated by a handful of wily hedge funds such as Senvest, which remains the best performing hedge fund of the year according to the weekly HSBC ranking…
… and facilitated by the WallStreetBets reddit board, continued to suffer throughout the first half which it ended down a whopping 46% as the hedge fund struggled – and failed- to bounce back from a vicious attack by Reddit traders on its short positions. This means that contrary to previous speculation that the fund had successfully dug itself out of the hole it dug for itself in the first month of the year, its results remained dismal through the end of June. In fact, as Bloomberg adds, Melvin now calculates its loss in the first month of the year at almost 55%, compared with a preliminary estimate of 53%.
A breakdown of its monthly performance reveals that after posting a strong rebound of 22% in February, performance has been inconsistent: Melvin dipped again in March, then gained 5.4% in the second quarter. In total, the fund returned about 18% from Feb. 1 through the end of June.
As Bloomberg snarkily comments, “some hedge fund observers question whether Plotkin — who has changed the way he makes short bets in the wake of the fiasco — can still produce blockbuster returns without taking aggressive positions against companies.”
So far the answer appears to be no.
But the staggering losses (and lack of recovery) also means that the late-January capital infusion into the fund by Plotkin’s former bosses, billionaires Steve Cohen and Ken Griffin, has been a losing one. Just how much money have they lost? For the answer we go to a Friday update by Bloomberg, according to which the long-term investment by Steve Cohen’s Point72 in Melvin lost roughly $500 million this year through June.
That’s also the reason why the iconic $22 billion hedge fund barely made money in the first half of 2021, returning just 1.2% in the first six months of the year, lagging behind other large multi-strategy hedge funds such as Citadel (which also invested in Plotkin), which was up 4.4%, and Millennium Management, which gained 6.5%.
Yet even with this year’s losses, Plotkin has been a profitable trade for Cohen: Point72 invested $200 million in Melvin when he started in 2014, and that sum grew to about $1 billion by the end of 2020 as Plotkin posted multiple years of double-digit returns, according to Bloomberg which adds that Point72 had other issues this year beyond Melvin’s struggles. The firm, like many generalist equity funds, got whipped around as value stocks surged on the back of the post-pandemic recovery, only to be overtaken yet again by technology shares and other growth companies that have dominated the market for years.
Other multi-strats had an even more painful first half, even without bailing out Melvin: among them was David Einhorn, who has been insisting that beaten down shares were set to soar. His Greenlight Capital plunged 7.6% in June, for a first-half loss of 3%. The fund is down a cumulative 32% since the end of 2014.
Finally, as Bloomberg wraps, some other hedge-fund managers had similar struggles in 2021. Andreas Halvorsen’s Viking Global Investors returned just 1% this year. Dan Sundheim’s D1 Capital Partners, which also got whiplashed by moves in meme stocks, notably the meltup in AMC, is up about 4%, compared with a gain of more than 50% in 2020.
Fri, 07/09/2021 – 16:39