Plotkin Says Hedge Funds Will Adapt in Wake of GameStop Rout

(Bloomberg) -- Melvin Capital Management founder Gabe Plotkin told Congress that the hedge fund industry will adapt to avoid a repeat of the Reddit-fueled stock rally that cost his firm billions of dollars.

“I don’t think investors like myself want to be susceptible to these type of dynamics” Plotkin testified Thursday during a House Financial Services Committee hearing, referring to the astronomical level of short interest in GameStop Corp. stock that preceded the volatility. “There will be a lot closer monitoring of message boards,” and Melvin has a data-science team that will be reviewing that, he said.

Plotkin’s firm was the target of a short squeeze by retail investors who piled into shares of GameStop Corp. and other companies that Melvin was betting would tumble. Ken Griffin, his partners and his Citadel hedge funds injected $2 billion into Melvin, which lost 53% in January. Griffin also testified at the hearing.

Plotkin said in prepared remarks that he had been short GameStop since Melvin’s founding in 2014, and that he closed out that position days before Robinhood Markets and other brokerages prevented their customers from buying the video-game retailer and other stocks because the trading volume overwhelmed their required capital buffers.

Plotkin said he also reduced other positions targeted by retail investors, many of whom coordinated their buying on Reddit.

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