On the off-chance that you've missed it, today's big story is, once again, Melvin Capital, the hedge fund that received a $2.75bn cash injection from Ken Griffin at Citadel and Steve Cohen at Point72 on Monday after Reddit-fuelled retail investors bet against its short of GameStop, and prompted the loss of $3.75bn of Melvin's $12bn under management. As of today, Melvin has closed-out its GameStop short and "repositioned" its portfolio.
It's clearly been a stressful week at Melvin. But what's it like to work there normally?
Before having a job at Melvin Capital became wildly stressful, the answer seems to have been that it was both very demanding and extremely lucrative.
While Steve Cohen's Point72 has 1,600 employees managing nearly $19bn in assets under management, Melvin Capital appears to have just 33 employees (who are currently listed on LinkedIn). Those 12 were managing $12bn until the recent mishap. Even if LinkedIn understates the reality and there are 50 or even 100 people working there, that's very few people for the size of the fund.
Until now, Melvin Capital has returned a regular 30% annually (44% in 2019). Yes, much of that upside will have gone to founder Gabe Plotkin's Miami Beach complex and yes, more will have gone to the likes of Cohen who'd already invested $1bn with Melvin before this week's emergency cash injection, but even if 50 employees shared just 5% of the gains on a $12bn fund which rose 30%, that would amount to $3.6m each on an annual basis. Accordingly, Melvin Capital has a reputation for paying even its analysts seven figures.
Who are those analysts? LinkedIn suggests a mixture of ex-SAC (Cohen's former hedge fund) people, ex-junior bankers from the likes of Evercore, Greenhill, Bank of America and Morgan Stanley, data specialists, and former private equity juniors. What's notable is that many of Melvin's employees are young - seemingly in their mid or late 20s - and in 'analyst' roles: 17 of the 33 employees on LinkedIn fit this description.
This is unusual to the extent that most other hedge funds have a combination of analysts, traders and portfolio managers. Melvin Capital, however, is different. It's all about analysis.
This is unsurprising given its genealogy. Before he founded Melvin, Plotkin worked with Steve Cohen at SAC, where he was a specialist in consumer and retail stocks and reportedly made investment decisions himself for $1.2bn of assets. SAC Capital was ordered to shut down in 2013 after Cohen pleaded guilty to not stopping insider trading at the firm and subsequently reached a $135m settlement with the SEC. There is no indication that Plotkin was involved in insider trading at SAC or that Melvin has repeated SAC's mistakes, but Plotkin has long been all about intense fundamental analysis: “Gabe Plotkin has built a successful career on a commitment to sound fundamental research,” an SAC spokesman said at the height of the storm in 2012.
The proliferation of analysts at Melvin isn't the only indication that Plotkin is perpetuating this fundamental approach. At a conference in 2019, he said that Melvin was, "a very human-intensive place," and that it required a lot of analysts to operate. Melvin had modeled more than 500 companies in “significant detail,” added Plotkin, saying that a group of data scientists then read into the trends. Human-intensivity doesn't seem to equate to a huge headcount, and it's perhaps unsurprising that Melvin also has a reputation for a "very heavy work schedule" to accompany its giant pay.
Melvin also has a reputation for hardly ever letting anyone go. Ex-Melvin employees are hard to come-by, although there's one at Stony Point Capital, a long short equity fund with a similar fundamental model, and another who left after a year and founded his own modular gym company. Melvin staff are therefore likely to hunker down until the Reddit storm blows-over, and to avoid mentioning where they work in public. Meanwhile, Reddit users are exalting in their victory. "At this point it’s class warfare," said one yesterday.
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