Hedge funds Millennium and Schonfeld call off partnership talks

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Millennium Management, the $60bn hedge fund led by Izzy Englander, and Schonfeld Strategic Advisors have terminated talks to form a partnership, according to people familiar with the situation.

The two multi-strategy fund managers had been in serious talks for several months over a deal for Schonfeld to manage money for Millennium, giving Englander’s fund access to its more than 100 investment teams, the Financial Times reported last month.

However, Schonfeld has walked away from the deal after its investors said they would give it about $3bn more to manage, ending what would have been a landmark transaction in one of the hottest areas of the hedge fund industry, one of the people said.

Millennium and Schonfeld declined to comment.

Schonfeld, which manages $11.7bn, has lagged larger peers in recent years. The firm’s main fund is up about 1 per cent this year to October, while Millennium has returned 8.3 per cent in the same time period.

New York-based Schonfeld started as a family office in 1988 with $400,000 that founder Steven Schonfeld earned working as a stockbroker. It is still the third best-performing multi-strategy firm over the past three decades, behind Ken Griffin’s Citadel and Millennium.

Investors remain keen to put money to work with multi-manager hedge funds, which allocate capital to specialist traders who are overseen by sophisticated risk management technology. As larger and more dominant players such as Millennium and Citadel have largely closed to new capital, smaller firms have benefited.

New money will help Schonfeld replenish its assets after its investors redeemed more than $2bn this year to October. The hedge fund, which offers clients monthly liquidity, has been trying to secure longer-term capital that will help it better withstand periods of stress amid a higher interest rate environment and an escalating talent war.

Multi-manager hedge funds use a pass-through expenses model. Instead of receiving an annual management fee, the manager passes on all costs to their end investors, including staff salaries and bonuses. As competition for talent has intensified, these costs have begun to eat into returns.

Partnership talks between Millennium and Schonfeld have started and stopped before. The two firms held discussions in early 2020 after Schonfeld suffered a 16 per cent loss during the coronavirus-induced market rout and was asked to put up more collateral by its prime brokers.

The talks ended after Schonfeld raised $2bn from investors.