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Melvin Capital dusts off the GameStop fiasco with a 22% profit

(Bloomberg) – Gabe Plotkin spent the first half of January defending his hedge fund portfolio from a Reddit mob. The second half attempted to convince investors that he could survive a 53% loss, explaining to Congress what happened in early February.After the public spectacle subsided, the most tangible sign is that his Melvin Capital management is showing it could actually manage to thrive again. After adjusting the strategy, Plotkin was up nearly 22% in February, roughly eight times the return on the S&P 500. That begins the toughest part of the 42-year-old hedge fund manager’s offer to climb out of the remaining hole in January’s conflict, which saw retail investors organize on social media to sell stocks like GameStop Corp. the raise that Melvin and others had bet on would fall. The episode cost its investors – including billionaire Steve Cohen, Brown University, and the Robin Hood Foundation – more than $ 6 billion. But even with the rebound, Plotkin’s fund, which was $ 8 billion in early February, needs to produce an extra 75% profit for previous clients before they break even and start paying fees again. Investors who have stayed with the company or have accumulated in the company are betting that he can do so because of his track record, which has ranked him as one of the best stock pickers up to this year. Last month’s performance was particularly welcome for investors who decided to raise a total of $ 250 million in early February – likely as an opportunity to add exposure to a hedge fund that was closed for new capital. The company now manages $ 10.9 billion, including February profits and money received on March 1st. That vote of confidence followed an investment by Ken Griffin, his partners, and his Citadel hedge funds in late January, as well as Cohen’s Point72 Asset Management, who together gave the company $ 2.75 billion in exchange for a three-year minority of Melvin’s earnings. The deal came about within a few hours. Plotkin said on his testimony before the House Committee on Financial Services last month that Griffin reached out to him and that the cash injection was not an emergency bailout. People close to his supporters say this doubles up because they have faith in his trading acumen and personally like Plotkin, who is known to be family-oriented and relatively nice in an industry that is known to be breakneck. Modifying bets He is also a confident risk taker. Since his time in Cohen’s shop, Plotkin has been known to occupy large positions on the long and short sides. Its recent performance suggests that the router did not affect its ability to make money in January. He changed his bets on stocks he expected to fall and said in his testimonial that he would avoid overcrowded shorts. One person familiar with his strategy said he would also take smaller positions to limit exposure to individual companies. And Plotkin asked his team of data scientists to scour social media and message boards to look for stocks that retail investors congregate around. He’s stopped using publicly traded puts that show up in his quarterly filings with the Securities and Exchange Commission – clues This allowed his company to be singled out by the Reddit crowd. Some hedge fund watchers wonder if Plotkin will continue to be able to generate blockbuster returns without clumsy short positions. In Melvin’s first year of trading, 70% of the fund’s profits came from its bearish bets. Plotkin, who grew up in a middle-class family in Portland, Maine, didn’t get off to a flashy start to his career as a money manager. Early on, he ended up at Griffin’s Citadel evaluating new businesses rather than occupying a more desirable investment position. After a year, he moved to North Sound Capital in Greenwich, Connecticut, where he spent two years as a consumer products analyst with limited trading powers. In 2006, he accepted a position at Cohen’s predecessor, SAC Capital Advisors. In five years, more than $ 1 billion worth of consumer stocks were managed. Plotkin was one of the company’s few managers with such a large portfolio and one of the highest-paid professionals. He would also accompany Cohen on customer visits to demonstrate SAC’s deep talent. Cohen’s HelpInside SAC he was known for his thorough research into companies he has invested in, former colleagues said. He used detailed models to analyze everything from cash flows to product demand rather than relying on market intelligence from brokers. He was also an early user of credit card information. Plotkin announced that he would be leaving Cohen’s firm to start his own business in early 2014, just months after SAC pleaded guilty to securities fraud and paid a record fine for resolving fees in the US six-year government crackdown on insider trading. Plotkin, who was not accused of wrongdoing, was among several senior portfolio managers who resigned. As part of the settlement, Cohen was only managing his own money at one point, reducing the amount of cash that should be distributed among portfolio managers. In December of that year, Plotkin was ready for use at Melvin. He named the company after his grandfather, who ran a grocery store and had the work ethic and integrity he wanted to emulate in his own business. Plotkin raised nearly $ 1 billion, including about $ 200 million from Cohen’s company, now called Point72. His only year was 2018 when he lost 6%. Over the next two years, its return was around 50%. Overall, from its launch in 2014 until last year it achieved an annualized return of around 30% things around. “We will adapt,” he said. “The entire industry needs to adapt.” (Updates with inflow dates in the fifth paragraph and details on the SAC role in the fourteenth paragraph.) 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