Melvin Capital Management is down 15% just three weeks into 2021, thanks to a series of wrong-way bets that stocks including GameStop Corp. would slump.
Founded by 42-year-old Gabe Plotkin, a former star portfolio manager for hedge-fund titan Steven A. Cohen, Melvin bets on and against stocks and managed about $12.5 billion at the start of the year. Its short book, or array of bets against companies, has driven losses so far this year, said people familiar with the matter. Melvin’s losses were broad-based and not driven by losses on GameStop or any other specific stock, some of them said.
The stumble by one of the best-performing hedge funds in recent years underscores the heavy losses being suffered by short sellers at a time when major indexes have soared to records. The market is as exuberant as many traders and portfolio managers say they have seen since the tech bust 20 years ago.
Many investors have complained about short squeezes that have left them nursing losses. In a short squeeze, heavy buying forces short bettors to buy back shares to limit their losses.
A sign of the pain short sellers are experiencing: Goldman Sachs Group Inc.’s basket of the 50 stocks with the highest short interest as a share of market capitalization was up a total 25% for the year through Friday, compared with a total-return of 2.4% by the S&P 500.