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Melvin Capital backtracks on plan to reinstate performance fees

Melvin Capital, hit the hedge fund with the highest profile from last year Mem-stock rallyBack quickly in a controversial plan to start charging performance fees again in the face of a reaction from investors.

US-based company, which Lost 53 percent In January last year after a bet against the favorite of retail investors GameStop, was Write Investors just last week with plans to remove the so-called high watermark, which stops a fund from charging performance fees until losses are repaid.

But within days, after receiving “honest” feedback from several investors, founder Gabe Plotkin admitted he was “deaf at first”.

“I’m sorry. I made a mistake. I made a mistake. I apologize,” Plotkin, a former protégé of billionaire merchant Steve Cohen, wrote in a letter to investors seen by the Financial Times.

“Some of you feel we were not good partners. After reflection, you are right,” added Plotkin, who said the company would invent a new plan after taking two to three weeks to process investor feedback.

Melvin, who has too Told investors Because it will seek to reduce its assets from about $ 8.7 billion at the end of March to about $ 5 billion, declined to comment.

A U-turn is the latest erroneous move by Melvin, who finished last year down 39% after recovering from just some of the losses he has suffered GameStop And lost another 20.6% in the first quarter of the year during a difficult period for the stock markets.

It also highlights how sensitive $ 4 billion in hedge fund industry investors are to paying hedge fund commissions after years of often missing returns. While before the financial crisis many investors were wealthy people or family firms willing to pay handsomely to support a star manager, the sector was increasingly dominated by large institutions like pension funds that wanted to protect their investors from overpayment.

Hedge fund performance commissions fell on average from 16.35% to 16.1% last year, the lowest level since 2008 at least, when the HFR data group began publishing this data.

While removing high watermarks is controversial and rare, managers who have suffered a large loss may argue that they find themselves short of cash to pay and keep the top traders, while the need to return to the high water level can also encourage traders to take too risky bets.

To earn high commissions, then “immediately burn billions of dollars in customer capital, then claim that poverty a year later is insolent, to say the least,” said Andrew Beer, a board member at Dynamic Beta.

Investors “tend to be smart about such actions,” said Patrick Galli, managing partner at Sussex Partners, which advises clients on investing in hedge funds. “It can hurt managers who try such changes,” he added.

Plotkin said there was “enough” interest in moving forward with the original plan, which also included easing investors’ exit from the fund, but added “it is now completely irrelevant to me.”

Melvin made headlines last year when she suffered big losses in her scratching position at video game retailer GameStop. Shares soared to 2,400% amid a frenzy of acquisitions by retail investors, some of whom coordinated their actions on Reddit and targeted direct hedge funds.

The fund, which managed assets of about $ 13 billion before the collapse of the memes shares, was eventually forced to Output Her bet against GameStop and crystallizes losses. During that month it took an emergency Cash injection Of $ 2.75 billion from Ken Griffin Fortress and Cohen’s Point72.

Melvin’s move was first reported by the New York Post.

laurence.fletcher@ft.com

Melvin Capital backtracks on plan to reinstate performance fees Source link Melvin Capital backtracks on plan to reinstate performance fees

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