Melvin Capital, hedge fund torpedoed by the GameStop frenzy, is shutting down.

Melvin Capital, the hedge fund run by Gabe Plotkin that struggled with heavy losses last year as it reeled from wrong-way bets on GameStop, is shutting down, according to a letter sent to investors on Wednesday that was reviewed by The New York Times.

Mr. Plotkin wrote to his investors that he had decided that the “appropriate next step” was to liquidate the fund’s assets and return cash to all investors.

Mr. Plotkin, who founded Melvin in 2014, also wrote that he recognized he needed to “step away from managing external capital.”

Mr. Plotkin, a protégé of the hedge fund billionaire and New York Mets owner Steven A. Cohen, had wagered that shares GameStop, AMC Entertainment and other mall mainstays from the 1990s would fall as their businesses shrank.

Instead, the stocks skyrocketed when amateur investors, coordinating via Reddit, Twitter and other social media sites and determined to outsmart big Wall Street funds, kept buying up shares and propping up their price.

That caused Melvin, which had $8 billion in assets under management in January 2021, to lose billions of dollars as it scrambled to cover its so-called short positions. It was propped up by a $2.75 billion bailout from the hedge funds Point72, run by Mr. Cohen, and Citadel, as well as fresh capital from new investors.

Before deciding to shutter his fund, Mr. Plotkin had considered reconstituting it. The decision to close Melvin, which Mr. Plotkin named after his late grandfather, is a blow to Mr. Plotkin’s reputation. He had gained fame as one of the most successful portfolio managers to emerge from Mr. Cohen’s former hedge fund, SAC Capital.

Bloomberg earlier reported the news of Melvin’s closure.

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