The hedge fund Citadel pumped billions of dollars into Melvin Capital after the fund’s stake in GameStop went bad, leading to huge losses. Now Citadel is taking back some of its money.
Citadel has announced to Melvin its plans to raise $ 500 million of the $ 2 billion it injected in late January, according to two people informed of the case who were not allowed to speak publicly about it. Under the terms of Citadel’s investment, the money will be returned in late September, people said, as the third quarter is coming to an end.
Citadels plan was first reported by The Wall Street Journal.
The cash infusion came in late January when Melvin struggled with a huge turnaround in his short game at GameStop. GameStop shares have flattened in recent years as it struggled to transform from a brick-and-mortar video game retailer into a more modern e-commerce business. But the company’s stock soared in January after new executives from Chewy.com, which sells pet products, were named and piled into the stock as small investors. managed by WallStreetBet’s forum on Reddit.
Melvin took heavy losses as it encrypted to cover the cost of its incorrect trade. Some of its other short positions, including its bet against cinema company AMC Entertainment, also hurt.
Citadel, based in Chicago, and Point72 Asset Management – a foundation based in Stamford, Conn., which Melvin’s founder, Gabriel Plotkin, once worked for – joined with a total of $ 2.75 billion in cash on January 25th. The injections helped stabilize Melvin, which has generated double-digit percentage returns since Feb. 1, according to one of the people briefed on its performance.
Melvin is still down 41 percent this year through July, according to an investor letter reviewed by The New York Times, due to its large losses from January.
As part of its investment, Citadel receives a cut in Melvin’s revenue, in addition to the returns it gets from its money, the two individuals said. Citadel also got the right to withdraw at least some of its cash already in the third quarter of this year, these people added – a right it now exercises. (Hedge fund investors are typically required to leave their capital invested for an extended period of time.) Citadel, which manages $ 38 billion in assets, has itself risen about 9 percent by mid-August, according to one person had been informed of the company’s return.
Mr. Plotkin declined to comment. Kenneth C. Griffin, founder of Citadel, did not respond to requests for comment.
Point72 continues to be.
“I have the same deal as Ken,” said Point72 CEO Steven Cohen, “and no plans to redeem.”
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