The hedge fund blown up by its bad GameStop bet is reportedly starting from scratch with a new short-selling fund

• Gabe Plotkin is planning a new hedge fund after he suffered severe losses from his GameStop short, according to a report from CNBC.
• He is in talks with his investors to close his current fund and then open a new one with a renewed focus on short-selling.
• The plan would essentially be a do-over for Plotkin who has suffered poor performance over the past 18 months.

Melvin Capital’s Gabe Plotkin is plotting a return to short-selling after his poor GameStop short-bet led to billions of dollars in losses last year, according to a report from CNBC.

He has been talking about a plan to shut down his current fund and return money to his investors with a voucher that would allow them to invest in a new fund focused on short-selling.

The move would essentially give him a do-over after his fund suffered poor performance over the past 18 months due to a number of bad bets that led to emergency funding from Ken Griffin’s Citadel and Michael Cohen’s Point72.

Both billionaire investors have since wound down their investment in Melvin Capital as Plotkin’s underperformance has lingered. The fund was down 21% at the end of the first quarter of 2022, according to CNBC.

If Plotkin moves forward with the plan, which would entail closing his current fund at the end of June and opening his new fund on July 1, it would allow him to earn a performance fee on whatever money his investors decide to reinvest without having to bring them back to breakeven on the losses they suffered from the GameStop short squeeze.

A new fund would also allow Plotkin to retain Melvin Capital’s employees, who often rely on a performance fee for their annual bonuses. 

After suffering a 39% loss in 2021, followed by a 21% loss in the first quarter of 2022, it would likely take a very long time for Plotkin to make back those losses before he can get paid for performance fees. Opening a new fund is a way to side step this issue. 

Plotkin’s plan is to keep his new fund at about $5 billion in assets with a renewed focus on shorting stocks, which was a well executed strategy prior to his sour bet on GameStop, sources told CNBC.

Whether his current investors decide to take the losses from Melvin’s current fund and recommit to a new fund remains to be seen.