Melvin Capital's History and the 2021 Market Crash

Melvin Capital was founded in 2014 by Mark Kingdon, a veteran hedge fund manager.

The hedge fund was known for its aggressive trading strategies, which often involved betting against popular stocks.

In 2020, Melvin Capital had a remarkable year, with returns of over 50% thanks to its bets against certain tech stocks.

However, this success was short-lived, as the fund suffered significant losses in 2021 due to its bets against companies like GameStop and AMC Entertainment.

Melvin Capital was founded by Josh Plotkin after he left SAC in late 2014. He named the fund after his late grandfather, a small-business owner.

The fund raised nearly $1 billion and had a very human-intensive approach, with a lot of analysts and an intense focus on the short side.

In its first full year in operation, Melvin Capital had returns of 47%, ranking it 2nd in Bloomberg's 2015 list of top-performing funds with $1 billion or more in assets under management.

The fund's returns were several times that of Steve Cohen's current hedge fund, Point72, in the same year.

Melvin Capital's high returns continued, averaging 30% annually between 2014 and 2020.

In 2015, nearly two-thirds of the fund's 67% returns (before fees) derived from its short positions.

Notable short positions included bets against J.C. Penney Co. and renewable-energy company SunEdison Inc., both of which ultimately went bankrupt.

The fund finished up 41% in 2017, with notable investments including Chewy.com, Amazon.com, Las Vegas Sands, Alibaba, and shorting GameStop.

Melvin Capital had returns of 44% in 2019, with one-third of the gains coming from Point72.

At the end of 2020, the fund made returns of 52%, making it one of the highest-performing hedge funds.

Melvin Capital consistently remained one of the top-performing hedge funds until 2021.

The fund charged investors an annual management fee of 2% and up to 30% of its profits, among the highest fee packages in the hedge fund industry.

In May 2022, Melvin Capital planned to close its funds and return the cash to its investors by June 30.

Melvin Capital lost over 30% in early 2021 due to short bets that went awry, including GameStop.

The losses were exacerbated by the fact that users of the subreddit r/WallStreetBets made widespread bets believing that GameStop's stock would increase in value.

Melvin Capital closed its short position in GameStop on January 26, but the amount lost was not confirmed.

The fund's losses continued past the 30% reported on January 24, with Bloomberg News reporting that the fund had repositioned its portfolio.

Melvin was reportedly losing more than a billion dollars a day during the height of the squeeze.

The short position adopted by Melvin Capital and others resulted in more than 139% of existing shares of GME being shorted, making GameStop stock the most shorted equity in the world.

At the end of Q1 2021, Melvin reported losses of 49%, and at the close of Q2 2021, Melvin was reported to be down 46% on the year.

Melvin finished 2021, a year during which the S&P 500 rose 28.7%, down more than 39%.

Melvin Capital was the target of at least nine lawsuits relating to its behavior during the GameStop short squeeze event.

These lawsuits were later dismissed, with Melvin contending that they were "without merit".

Melvin Capital, a premier Wall Street hedge fund, lost 53% in January due to its involvement in the GameStop frenzy.

The fund was heavily invested in short-selling GameStop, betting that the company's shares would drop.

However, on January 11, GameStop announced new board members who could help it with digital sales, which sparked a frenzy on Reddit's WallStreetBets, catapulting GameStop's stock more than 1,600%.

Hedge funds like Melvin with huge short positions in GameStop got burned, as the Reddit group specifically targeted stocks that were heavily shorted.

GameStop had more short interest than shares on the market at one point, making it a prime target for the Reddit group.

The fund's losses were substantial, with Melvin Capital starting the year with roughly $12.5 billion in assets and ending the month with more than $8 billion after receiving commitments from current investors for more capital.

Melvin Capital received a $2 billion bailout from Citadel, a hedge fund owned by billionaire Ken Griffin, to help stabilize the fund.

The fund's portfolio liquidity is strong, and the use of leverage is at the lowest level since Melvin Capital's inception in 2014, according to a source familiar with the matter.