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The firm lost billions of dollars as it scrambled to cover its bets against the video game retailer that became a darling of retail traders.
Melvin Capital, the hedge fund run by Gabe Plotkin that struggled with heavy losses last year as it reeled from wrong-way bets on GameStop, is shutting down, according to a letter sent to investors on Wednesday that was reviewed by The New York Times.
Mr. Plotkin wrote to his investors that he had decided that the “appropriate next step” was to liquidate the fund’s assets and return cash to all investors.
Mr. Plotkin, who founded Melvin in 2014, also wrote that he recognized he needed to “step away from managing external capital.”
Mr. Plotkin, a protégé of the hedge fund billionaire and New York Mets owner Steven A. Cohen, had wagered that shares GameStop, AMC Entertainment and other mall mainstays from the 1990s would fall as their businesses shrank.
Instead, the stocks skyrocketed when amateur investors, coordinating via Reddit, Twitter and other social media sites and determined to outsmart big Wall Street funds, kept buying up shares and propping up their price.
That caused Melvin, which started 2021 with more than $12 billion, to lose 53 percent in January, forcing it to scramble to cover its so-called short positions. It was propped up by a $2.75 billion bailout from the hedge funds Point72, run by Mr. Cohen, and Citadel, as well as fresh capital from new investors.
Citadel began redeeming its investment last year and no longer had money with Melvin as of last month. Point72 has also redeemed the infusion it made in the wake of the GameStop frenzy, according to an individual familiar with that firm’s investments.
Before deciding to shutter his fund, Mr. Plotkin had considered reconstituting it. The decision to close Melvin, which Mr. Plotkin named after his late grandfather, is a blow to Mr. Plotkin’s reputation. He had gained fame as one of the most successful portfolio managers to emerge from Mr. Cohen’s former hedge fund, SAC Capital.
Bloomberg earlier reported the news of Melvin’s closure.
Matthew Goldstein covers Wall Street and white collar crime and housing issues. More about Matthew Goldstein
Kate Kelly covers money, influence, and policy as a correspondent in the Washington bureau of the Times. Before that, she spent twenty years covering Wall Street deals, key players and their intersection with politics. She is the author of three books, including "The Education of Brett Kavanaugh." More about Kate Kelly
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