Gabe Plotkin’s trading hand was so hot for so long that Steve Cohen, one of Wall Street’s most prominent investors, decided to break his own rule.
Cohen generally doesn’t like staking people who leave his hedge fund, nor does he farm out much of his wealth to other managers, but he did so repeatedly for his one-time protege. Plotkin got a $200 million check from Cohen to start his own firm in 2014, and more last year when he ran into trouble with meme-stock traders.
Cohen and many others on Wall Street assumed that Plotkin’s prowess in markets would translate into the other skills needed to lead a multibillion-dollar money manager serving hundreds of clients. That belief has cost university endowments, pensions and investment managers billions of dollars over the past two years.
After a spurt of losses and fraught talks with clients, Plotkin abruptly announced in May that he’s winding down Melvin Capital Management, a firm that had multiplied his wealth, leaving customers to dwell on years of gains that suddenly gave way to steep declines over the past 17 months. The decision to walk away shocked clients and disappointed some of Plotkin’s own lieutenants. On Wednesday, investors were told the liquidation is done -- locking in a roughly 8% loss for May and bringing the decline since the start of 2021 to about 57%.
In recent days, people close to the firm agreed to talk with Bloomberg about how things unraveled so quickly.
One of their takeaways is a cautionary tale for the industry: Betting on a star investor who drives their own firm can make for a wild ride. Melvin, like many single-manager funds its size, lacked many of the trappings of bigger institutional money managers, such as an operating committee to vote on key decisions. Instead Plotkin, 43, gathered advice and information, discussed his thinking with a tight circle, and once he developed a view, acted swiftly -- sometimes with contrarian moves that caught clients and staff off guard.
Such stealth, speed and conviction can generate a fortune in markets. But for running a business, it makes life unpredictable.
As returns swung over the past year, some investors hoped Plotkin would stabilize Melvin by beefing up risk management, and even broached the topic to no avail. When investors later submitted a wide range of suggestions for more dramatic overhauls, Plotkin listened but ultimately didn’t follow the advice.
In Melvin’s final weeks, even employees puzzled as they watched him sell down the portfolio, unsure if the boss was just shifting toward cash like other tech-heavy peers looking to ride out the recent market volatility or if he’d decided to throw in the towel. Now colleagues and investors are trying to come to terms with the closure.
This look at how Plotkin’s decisions unfolded and the impact on Melvin’s associates is based on interviews with a dozen people who asked not to be identified recounting the lead-up and aftermath of Melvin’s downfall.