Citadel Is Further Paring Back $2 Billion Melvin Investment
Citadel also redeemed half its investment in the hedge fund in 2021
Citadel LLC is further paring back its $2 billion investment in Melvin Capital Management after the hedge fund stumbled in its effort to recover from a near collapse triggered by surges in GameStop Corp. and other “meme stocks” early last year.
Citadel in late January asked to redeem half the money the firm and its partners have left in Melvin’s hedge fund, after originally halving their investment late last year, as Melvin racked up double-digit losses for the second January in a row, people familiar with the matter said. The latest redemption request would be paid out at the end of March, the people said.
Citadel and its partners invested $2 billion in January 2021, alongside a $750 million influx from Steven A. Cohen’s Point72 Asset Management, in exchange for a share of Melvin’s fees over the next three years. The rare intra-month investment, made as the $12.5 billion hedge fund was suffering mounting losses from the ferocious meme-stock rally, enabled Melvin to reduce its leverage and avoid being a forced seller.
The Wall Street Journal reported in August that Citadel and its partners planned to redeem roughly $500 million from Melvin. Citadel, which manages about $45 billion, ultimately wound up withdrawing more, halving its investment, after Melvin raised money from other investors.
Citadel founder Ken Griffin wasn’t happy about Melvin’s losses this January, some of the people said. It is possible Citadel would have redeemed even if Melvin had performed better; Citadel rarely maintains significant investments with outside managers and is known for being opportunistic.
A person familiar with Citadel said it hadn’t determined what future redemptions, if any, it would make. Melvin executives expected Citadel’s investment to decrease over time and consider the firm a good partner, a person familiar with the matter said.
Founded by Gabe Plotkin, a former star portfolio manager for Mr. Cohen, Melvin was one of the top hedge funds on Wall Street when it lost about $6.8 billion—more than half its assets—in January 2021 as individual investors banded together to target the firm and bets it had made against GameStop and other companies. Strategy changes helped the fund claw back some of those losses in the remainder of last year, but Melvin lost 15% this January as technology and other fast-growing companies it had bet on sold off.
It couldn’t be learned how the fund has fared in February.
Individual wagers that hurt the fund include a bet against videogame giant Activision Blizzard Inc., which Microsoft Corp. agreed to acquire in January in a roughly $75 billion deal, people familiar with Melvin said.
In a sign of the reputation Mr. Plotkin had earned before the firm’s recent travails, Melvin received few redemption requests last year and even took in more than $2.5 billion through several fund raises—not counting the investments by Citadel and Point72.
Client sentiment toward Melvin has been mixed in recent weeks. Some investors have said Melvin’s most recent losses were understandable given the hit funds employing similar strategies suffered. Others have asked whether the size of Melvin’s short book is large enough and whether the firm is too big and should return some money to clients. Melvin started 2022 with $11.7 billion.
Some investors also said they were unhappy Mr. Plotkin is launching a lower-fee, long-only fund, which was earlier reported by Reuters. Several said Mr. Plotkin should focus first on making back money for clients who suffered losses. A person familiar with Melvin said the new fund replicates the long positions in Melvin’s main fund and won’t distract Mr. Plotkin and his team.
Point72 hasn’t redeemed any of its recent investment, people familiar with the matter said. Point72 benefited from Mr. Plotkin’s performance before last year, having been a Day-1 investor via its predecessor firm, SAC Capital Advisors, when Melvin launched in 2014. Point72 had more than $1 billion invested in Melvin as of 2019. People familiar with Point72 also said the firm has more history investing with outside managers.