Millennium and Schonfeld: What's really going on?
Yesterday, the Financial Times reported a curious evolution in the world of multistrategy hedge funds. Millennium a hedge fund with $60bn in assets under management is in discussions with Schonfeld, a fund with $13bn in assets under management.
Under the putative agreement, Schonfeld would manage money for Millennium while also managing money for its own investors.
Millennium is one of the biggest hedge funds in the world. At the end of 2022, it employed 4,810 people of which 2,400 were investment staff. The Financial Times says it now employs 5,800 people, an increase of 21% or 990 people in 10 months. That's a lot of new people for Millennium to find, particularly given that talented portfolio managers are a rare breed.
The FT doesn't divulge Schonfeld's current headcount, but it says the fund has 100 investment teams. Schonfeld's most recent regulatory filing says it has just 310 investment employees and 856 people in total.
In other words, Schonfeld is much smaller than Millennium. And Millennium is making the most of its smaller rival's talents.
The strangeness beneath the surface
And yet, there are a few curious features of the potential new coupling.
Firstly, Schonfeld's 310 investment employees already look a bit overburdened. Every one of them is already managing an average of $42m per head (before any leverage is applied), compared to an average of circa $25m per investment employee at Millennium. This might be because Schonfeld's strategies have historically been more systematic and require less human intervention. But it may also explain why Schonfeld has been one of the worst performing major hedge funds year-to-date, with returns of just 0.5% at its major fund through to September 10th, compared to 5.5% through to August at Millennium.
If Schonfield people are already struggling, why would they want to take on more assets?
This isn't entirely clear, and Schonfeld didn't respond to a request to comment. However, Bloomberg reported in September that Schonfeld had cut its fees in an attempt to attract investors to its underperforming fundamental equity fund, so maybe Millennium will put its money here. At the same time, Schonfeld has been cutting costs by purging tech and recruitment staff (even while still hiring opportunistically from Eisler), implying things might be getting a bit tight.
Millennium declined to comment for this article, but it's still out there hiring, despite its new Schonfeld appendage. Millennium's recent recruits include Richard Russell, a former emerging markets debt trader from Goldman Sachs in London, and Goli Habbas, Morgan Stanley's former EMEA head of prime brokerage sales. Habbas joins in a business development role, where she will presumably be hiring and onboarding yet more new portfolio managers to Millennium.
What does the tie-up mean for Schonfeld's people? That will soon become clear, but seasoned PMs say they will almost certainly have to adhere to Izzy Englander's way of doing things. That could be a shock: Millennium has a reputation acting decisively when PMs hit loss limits; Schonfeld, by comparison, prides itself on being a bit more tolerant. "Some of our most successful PMs would have been fired by our competitors because they initially struggled," Ryan Tolkin, the CEO of Schonfeld, told Business Insider in 2019. Good luck with that at Millennium.
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