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Millennium Management is in advanced talks with smaller rival Schonfeld Strategy Advisors over a multibillion-dollar partnership deal that would be the largest such tie-up in the $4 trillion global hedge fund industry, people familiar with the matter said. protocol.
Under the plan, Schonfeld, a computer manager with $13 billion in assets under management, will handle funds for Izzy Englander’s company, which has nearly $60 billion in assets, people familiar with the matter said. Schoenfeld will continue to manage funds for other investors, they added. The plan has not yet been finalized.
Millennium, which has more than 5,300 employees, will have access to Schonfeld’s more than 100 investment teams as it looks to gain an edge in the industry-wide war for talent. Schoenfeld will remain independent and use Millennium’s long-term capital to grow its business.
Millenium and Schonfeld declined to comment.
Following Ken Griffin’s Citadel, Millennium and Schonfeld are two of the best-performing names in the multi-manager space, the fastest-growing and most profitable part of the hedge fund industry. Both companies were founded in New York more than thirty years ago.
Multi-manager teams typically employ tens to hundreds of autonomous and highly specialized risk takers in teams, or so-called cells, who employ a range of different strategies and operate within tight risk limits. While the pods focus on investments, the parent platform takes care of everything else from operations to marketing.
Millennium allocates funds across more than 300 investment groups. As its assets swell through strong performance and customer inflows, the company faces challenges in how to use its cash. It has returned billions of dollars to investors over the years and is not taking in new money.
The Schoenfeld deal provides an opportunity for Millennium to diversify its business, and the company believes access to significant capital will enhance returns.
Millennium’s investment approach focuses on four areas: relative value fundamental equity, equity arbitrage, fixed income and quantitative strategies. The partnership with Schonfeld, which specializes in fully automated trading strategies, will enhance its firepower in quantitative investing.
Instead of charging annual management fees, multi-managers use a “pass-through” fee model, in which managers pass on all costs – including office rent, technology and data, salaries, bonuses and even client entertainment – to end investors. Costs in a pass-through model typically range from 3% to 10% of assets per year, in addition to a performance fee that is typically 20% to 30% of profits.
Millennium and Schonfeld’s planned partnership comes as fierce and increasingly expensive competition for talent puts pressure on platforms’ business models and as returns for many multi-managers have dwindled this year.
In the year to the end of August, Millennium gained 5.5%, Schonfeld was essentially flat and Citadel gained 10.8%, according to investors.
Millennium has a similar partnership agreement with WorldQuant, a quantitative investment firm run by Igor Tulchinsky, who joined Englander’s firm in 1995. WorldQuant, which was spun off from Millennium in 2007, manages about $10 billion, including about $7 billion in Millennium transactions. and about $3 billion in funds open to other investors.
WorldQuant has been a significant contributor to Millennium’s performance, and Tulchinsky is one of its highest-paid investors.
Schonfeld started the family office in 1988, and its eponymous founder, Steven Schonfeld, made $400,000 while working as a stockbroker. The hedge fund’s current iteration dates back to 2015, when it opened to outside investors.
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