Citadel Withdraws from Melvin Capital after Fund Lost ~40% in 2021

Ken Griffin’s Citadel is redeeming most of its $2 billion investment in Melvin Capital Management. Previously known as one of the best-performing funds, Melvin Capital suffered huge losses as a consequence of the meme stock trading frenzies in early 2021 and has since been performing poorly.

Melvin Capital Termed as “The Worst Performing” Hedge Fund after 2021’s Short Squeeze

Melvin Capital, which was at the center of the GameStop short squeeze, was hard hit by a series of short bets last year. In January 2021 alone, the fund, which was betting against GME, lost 53% after a retail-fueled rally sent prices of the retail video gamer to the moon, bringing GameStop’s total return to 1,625% by early February. 

To shore up Melvin’s finances, Citadel infused $2 billion in investment in January 2021. At the time, the fund also received an investment of $750 million from Point72. In return, both Citadel and Point72 took a non-controlling revenue share. 

However, the fund failed to recover and continued to perform poorly. In May, Melvin was hurt again after AMC, the movie theater chain that the fund was betting against, gained the support of retail traders and started skyrocketing. This way, it lost another 4% in May and ended the first half of the year with a 46% loss.

The New York-based hedge fund did manage to slightly trim its losses by the end of 2021, ending the year with a loss of 41%. However, due to the staggering loss, the fund was rated as the “The Worst Performing” hedge fund of 2021 by Bloomberg. In contrast, the S&P 500 rose ~28% in the same period.

Historically, Melvin has been a strong performer posting annualized returns of 30%. Even in 2021, the fund was pretty successful aside from its bad luck with GME and AMC. Rising Candle, a financial news provider, reported:

“Melvin has produced a 25% return from February 1st through the end of July, making it one of the top-performing hedge funds for the period. But its losses in the immediate wake of Citadel’s and Point72’s investments cut significantly into those funds’ gains on their January wagers on Melvin.” 

Meanwhile, Melvin has started 2022 with double-digit losses, losing 15% in January. 

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Citadel to Pull Back $500M From Melvin Capital in 2022

Citadel aims to pull back further from its $2 billion investment in Melvin, redeeming another $500 million. The move comes as Citadel founder Ken Griffin is not happy about Melvin’s losses this January, The Wall Street Journal reported, citing people familiar with the matter. 

The report details that Citadel asked for $500 million in late January, which would be paid out at the end of March. Prior to this, Citadel expressed intentions to redeem around $500 million from Melvin in August but ended up pulling $1 billion by late last year.

Aside from the investments by Citadel and Point72, Melvin received more than $2.5 billion through several fundraises, which suggests that the fund still has a good reputation among some investors. It is worth noting that Melvin’s most recent losses are somehow understandable since almost all other funds employing similar strategies suffered losses in 2021.

Do you think Melvin would be able to recover its early-year losses and finish the year posting returns? Let us know in the comments below.