Steve Marcus/Reuters
- Steve Cohen’s Point72 and Ken Griffin’s Citadel are investing $2.75 billion in Melvin Capital.
- Melvin is down about 30% this year as its short positions are getting hammered.
- Day traders have bid up the stock prices of GameStop, Bed Bath & Beyond, and other popular shorts.
- Visit Business Insider’s homepage for more stories.
A pair of billionaire investors are swooping in to support a short-selling hedge fund in its battle against an army of irreverent day traders.
Steve Cohen’s Point 72, Ken Griffin’s Citadel, and other partners are plowing a total of $2.75 billion into Melvin Capital, the hedge funds said on Monday. They will receive non-controlling revenue shares in Melvin in return for their money.
Melvin will welcome the cash injection as painful short bets have left it down 30% year-to-date as of Friday, The Wall Street Journal reported.
Scores of retail investors, including some members of Reddit forum r/wallstreetbets, have targeted heavily shorted stocks in recent weeks. They drove GameStop’s stock price up as much as 145% on Monday, Bed Bath & Beyond up 58%, BlackBerry up 48%, and AMC up 39%.
Melvin takes more negative positions than most of its Wall Street rivals, exposing it to potentially heavy losses. It owned “puts” – bets that a stock price will fall – on 17 US-listed companies including GameStop and Bed Bath & Beyond at the end of September.
The firm’s strategy has paid off in the past. Melvin has returned an average of 30% annually since its founding in 2014, and had grown its assets under management to $12.5 billion at the start of this year, The Journal said.
Gabe Plotkin, a former star portfolio manager at Cohen’s SAC Capital, quit to start Melvin in 2014. He counted Cohen as a day-one backer.
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