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Millennium Management, the $60 billion hedge fund led by Izzy Englander, and Schonfeld Strategic Advisors have ended partnership talks, according to people familiar with the situation.
As the Financial Times reported last month, the two multi-strategy fund managers have been in serious discussions for several months about a deal with Schonfeld, who will manage money for Millennium and give the Englander fund access to its more than 100 investment teams.
But one of the people said Schoenfeld backed out of the deal after his investors said they would give the company about $3 billion more to manage. This marked the end of a groundbreaking transaction in one of the hottest areas of the hedge fund industry.
Millennium and Schonfeld declined to comment.
Schonfeld, which manages $11.7 billion, has underperformed larger rivals in recent years. The firm’s main fund is up about 1 percent this year through October, while Millennium has returned 8.3 percent over the same period.
New York-based Schonfeld started as a family office in 1988 with $400,000 that founder Steven Schonfeld earned as a stockbroker. It is still the third-best performing multi-strategy firm of the last three decades, behind Ken Griffin’s Citadel and Millennium.
Investors remain interested in putting their money into multi-manager hedge funds that distribute capital to specialized traders monitored by sophisticated risk management technologies. As larger and more dominant players like Millennium and Citadel have largely closed themselves off to new capital, smaller companies have benefited.
New money will help Schoenfeld replenish his fortune after his investors returned more than $2 billion this year through October. The hedge fund, which offers monthly liquidity to clients, is trying to secure longer-term capital that will help it weather periods of stress amid a higher interest rate environment and an escalating talent war.
Multi-manager hedge funds use a pass-through cost model. Instead of receiving an annual management fee, the manager passes on all costs to its end investors, including employee salaries and bonuses. As competition for talent has intensified, these costs are starting to erode returns.
Partnership talks between Millennium and Schönfeld have been started and ended earlier. The two companies held talks in early 2020 after Schonfeld suffered a 16 percent loss during the coronavirus-induced market crisis and was asked by his prime brokers to put up more collateral.
The talks ended after Schönfeld raised $2 billion from investors.