The hedge fund run by its founder, Gabriel Plotkin, has been discussing a novel plan with its investors under which the firm would return their capital, while giving them the right to invest in a new fund run by Plotkin.
Plotkin would end his current fund at the end of June. At the end of the first quarter, the fund was down 21%.
Plotkin would start a new fund on July 1 with whatever money his investors decided to invest, but he would not have to bring those investors back to their invested capital before he could earn a performance fee.
The high water mark, which requires hedge fund managers to return their investors capital to par prior to earning fees, is almost impossible for Plotkin to meet on much of the capital in Melvin.
According to people familiar with Plotkin's plans, he will keep his fund at or below $5 billion in capital and will return to shorting stocks.
The plan would allow Plotkin to keep his employees even though he doesn't have performance fees to pay them.
Plotkin's ability to make significant profits by shorting stocks was a factor in the strong track record of success. His fund grew in size.
Plotkin is trying to convince investors that he can run their money in a smaller fund focused on his strength of shorting stocks, but forever giving up the hope of having him work to get them back to even on their current holdings.
Plotkin's investors will be willing to invest in him, but how that plan will be received is unclear.
A number of well-known hedge fund managers, faced with high water marks, have chosen to shut down and then re-open a new fund as soon as a year later, but this would be a unique transition from one fund to another with the immediate elimination of the high water mark.
Representatives for Plotkin could not be reached for comment.
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