The hedge fund Citadel pumped billions of dollars into Melvin Capital after that fund’s bet against GameStop went bad, leading to huge losses. Now, Citadel is taking some of its money back.
Citadel has notified Melvin of its plans to retrieve $500 million of the $2 billion it injected in late January, according to two people briefed on the matter, who were not authorized to speak publicly about it. Under the terms of Citadel’s investment, the money will be returned at the end of September, the people said, as the third quarter draws to a close.
Citadel’s plan was first reported by The Wall Street Journal.
The cash infusion came in late January as Melvin was grappling with a huge turnaround in its short bet of GameStop. GameStop’s shares flatlined in recent years as it struggled to refashion itself from a brick-and-mortar video-game retailer into a more modern e-commerce company. But the company’s stock skyrocketed in January, after new directors from Chewy.com, which sells pet products, were named and as small investors piled into the stock, goaded on by the WallStreetBets forum on Reddit.
Melvin took heavy losses as it scrambled to cover the costs of its wrong-way trade. Some of its other short positions, including its bet against the movie-theater company AMC Entertainment, were hurting it, too.
Citadel, which is based in Chicago, and Point72 Asset Management — a fund based in Stamford, Conn., that Melvin’s founder, Gabriel Plotkin, once worked at — stepped in with a combined $2.75 billion in cash on Jan. 25. The injections helped stabilize Melvin, which has generated double-digit-percentage returns since Feb. 1, according to one of the people, who was briefed on its performance.
Melvin is still down 41 percent for this year through July, according to an investor letter reviewed by The New York Times, because of its heavy losses from January.
As part of its investment, Citadel receives a cut of Melvin’s revenue, in addition to the returns it gets on its money, the two people said. Citadel was also given the right to pull out at least some of its cash as early as the third quarter of this year, these people added — a right it is now exercising. (Hedge fund investors are typically required to leave their capital invested for a longer period.) Citadel, which manages $38 billion in assets, is itself up about 9 percent through mid-August, according to one of the people, who had been briefed on the firm’s returns.
Neither Kenneth C. Griffin, Citadel’s founder, nor Mr. Plotkin immediately responded to requests for comment.
Point72 is staying put.
“I have the same deal as Ken,” said Point72’s chief executive, Steven Cohen, “and no plans to redeem.”
Source: Read Full Article