Hedge fund Citadel injected billions of dollars into Melvin Capital after that fund’s bet against GameStop went awry, resulting in huge losses. Now, the Citadel recovers some of its money.
The Citadel has informed Melvin of its intention to recoup $ 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. Under the terms of Citadel’s investment, the money will be returned in late September, people said, as the third quarter draws to a close.
The plan of the citadel was first reported by The Wall Street Journal.
The cash injection came in late January as Melvin struggled with a huge turnaround in his short GameStop bet. GameStop’s shares have stalled in recent years as it struggled to reshape itself from a traditional video game retailer into a more modern e-commerce company. But the company’s shares soared in January, after new directors at Chewy.com, which sells pet products, were named and small investors piled into the shares, encouraged by the WallStreetBets forum on Reddit.
Melvin suffered heavy losses as he struggled to cover the costs of his trade against the tide. Some of his other short positions, including his bet against movie company AMC Entertainment, also hurt him.
Citadel, which is based in Chicago, and Point72 Asset Management – a Stamford, Connecticut-based fund where Melvin founder Gabriel Plotkin previously worked – intervened with $ 2.75 billion in cash on January 25. . The injections helped. stabilize Melvin, which has generated double-digit returns since Feb. 1, according to one of the people, who was briefed on his performance.
Melvin is still down 41% for this year through July, according to an investor letter reviewed by The New York Times, due to his heavy losses from January.
As part of its investment, Citadel perceives a reduction in Melvin’s income, in addition to the return on his money, the two said. Citadel has also been granted the right to withdraw at least some of its cash as early as the third quarter of this year, the people added – a right it now exercises. (Investors in hedge funds are generally required to leave their capital invested for a longer period.) Citadel, which manages $ 38 billion in assets, is itself up about 9% through mid -August, according to one of the people, who had been briefed on the company’s performance.
Mr. Plotkin declined to comment. Kenneth C. Griffin, founder of Citadel, did not respond to requests for comment.
Point72 remains in place.
“I have the same deal as Ken,” said Point72 general manager Steven Cohen, “and I have no plans to buy back.”