Melvin Capital to Close Funds, Return Cash to Investors

Melvin had been, until last year, one of the top-performing hedge funds in the industry.

Its executives as recently as last week had been soliciting clients for their thoughts on what new fee arrangements seemed fair to them and to Melvin going forward. Mr. Plotkin had previously tried to do away with Melvin’s so-called high-water mark, a standard industry arrangement in which hedge funds don’t collect performance fees until their clients are made whole from prior investment losses. The proposal met with resistance from many of Melvin’s clients, and Mr. Plotkin withdrew that plan and apologized to investors.

Investors had been sharing various proposals they thought would be fair, including Mr. Plotkin keeping the firm’s current terms until the end of the year and then implementing a modified high-water mark that would have let Melvin collect a lower performance fee in the interim, people familiar with the firm said. Hopes of big paydays help motivate and keep investment teams intact, fund managers say.

While Melvin made up some of its huge January 2021 losses from the rally in GameStop Corp. and other so-called meme stocks, its focus on fast-growing companies dealt it further setbacks this year as investors soured on such stocks and its losses widened. This year through April, Melvin had lost 23%. Since its start, it has averaged an 11.9% return.

Its track record of about 30% a year after fees before 2021 was among the best on Wall Street.

Write to Juliet Chung at [email protected]