Citadel and Point72 Asset Management have agreed to invest $2.75bn in the hedge fund Melvin Capital after its difficult start to the year, in a rare move that sees two industry titans help a smaller rival.

Ken Griffin’s Citadel will invest $2bn and Steve Cohen’s Point72 will add $750m, according to sources familiar with the transaction.

The infusion of capital comes as Melvin, which was founded by Gabe Plotkin, a protégé of Mr Cohen’s, suffered double-digit percentage investment losses in the first few weeks of January.

“I’ve known Gabe Plotkin since 2006 and he is an exceptional investor and leader. We are pleased to have the opportunity to invest additional capital and take a non-controlling revenue share in Melvin Capital,” Mr Cohen said in a statement.

Mr Griffin said: “Gabe Plotkin and team have delivered exceptional results over the history of Melvin. We have great confidence in Gabe and his team.”

Melvin declined to comment.

Point 72 had already invested $1bn for Melvin to manage. Mr Plotkin worked for Mr Cohen at SAC Capital until it shut down in 2013 amid an insider trading scandal.

Large firms are known to provide seed funding for smaller managers when they strike out on their own but it is relatively unheard of for hedge funds to invest in another firm later on — particularly when its performance is struggling.

Investing professionals such as Mr Plotkin are being squeezed by online traders who have enthusiastically ploughed money into the stock market despite concerns that companies are overvalued.

Filings with regulators show that Melvin held put options on several companies’ shares — effectively a bet that they will fall — even as the stock market shrugged off a global health crisis to reach new heights.

Melvin is among the hedge funds betting against the gaming retailer GameStop, a favourite of retail investors, whose shares are up by 345 per cent this year.