Up until January of last year, Gabe Plotkin’s life enjoyed a fairly unimpeded upward trajectory. By his own lights of relatively humble origin—middle-class grandson of a shopkeeper, Maine public schools—he went from Northwestern University to Citadel Investment Group and on to earn his reputation and fortune at SAC Capital Management. Amidst the insider-trading scandal, in which Plotkin had a notable bit part, he fled, but managed to enjoy the best of both worlds: running his own hedge fund, Melvin Capital (named for the aforementioned grandfather) while also still running a substantial chunk of Steve Cohen’s money—very successfully, at that, with an average 30% annual return, including a 53% triumph in 2020.
And then, well, then GameStop happened. And sort of kept happening, long after Plotkin had exited his last GME short. And, well, damnit, it keeps happening, with Melvin down more than 20% in the first quarter.
After a lifetime of more or less unbroken success, one can be forgiven for wanting a do-over for the worst 14 months of one’s life. And, well, Plotkin very much wants a do-over.
Under the terms being discussed, Plotkin would unwind his current fund at the end of June…. Plotkin would then start what would essentially be a new fund on July 1 with whatever money his investors decided to reinvest, but he would do so without having to bring those investors back to even on their invested capital before he could earn a performance fee.
That’s right: Let’s literally pretend the last 14 months—14 months in which Plotkin lost more than half of the money entrusted to him—didn’t happen. But lest you think this is an entirely self-serving exercise, just look what Plotkin is willing to offer in exchange for your amnesia:
Melvin starting June 1 plans to charge incentive fees ranging from 15% to 25%, down from its previous performance fee of 20% to 30%, before reverting to its original, higher fee structure on Jan. 1, 2025…. Melvin also plans a raft of more investor-friendly changes including reduced management fees for 30 months, giving clients the ability to get their money back in full in one year instead of three, and promises not to launch new products and to keep the fund’s size smaller.
Plotkin, according to people familiar with his plans, has committed to keeping his “new” fund at or below $5 billion in capital and returning to a focus on shorting stocks, a talent for which he was known for many years prior to suffering significant losses during the meme stock craze of early 2021.
Melvin’s charging of performance fees will also benefit Steven A. Cohen’s Point72 Asset Management and Ken Griffin’s Citadel, said people familiar with the matter. Those two firms invested in Melvin in late January 2021 and as part of their deals got a three-year share in Melvin’s revenue. While both Citadel and Point72 have withdrawn or submitted requests to redeem parts of those investments, the revenue share stands…. Mr. Plotkin said Melvin would consider shutting down the long-only fund by the end of the year.
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