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Hedge Fund Alert: Millennium Churns Pool of External Managers

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Millennium Management’s investment in Teza Capital earlier this year marked the fifth time in 12 months that the multi-strategy giant hired an outside manager to run money for its $36 billion fund.

Since the first quarter of 2017, Millennium also has opened separate accounts with Albar Capital, Centenus Global Management, Crescent Asset Management and Navik Capital, the latest SEC filings show. In its deal with Teza, inked in the first quarter of this year, Millennium agreed to invest an initial $600 million with the quantitative fund manager, nearly doubling its assets. Millennium founder Izzy Englander is prepared to invest a total of $2 billion over three years, depending on Teza’s performance and other factors.

The investments highlight a little-understood fact about Millennium: that in addition to employing some 200 portfolio-management teams in-house, the New York firm has long relied on a small number of external managers to run money for its fund. It currently invests with 10 outside firms, the other five being Aesir Capital, BDK Capital, Key Group Holdings, Parametrica Asset Management and Symmetry Investments. Since 2012, Millennium has deployed capital to 21 unaffiliated managers via separate accounts.

Millennium’s portfolio of external managers has experienced an unusual amount of turnover in the past year. In addition to adding five managers, Englander parted ways with three — most notably Field Street Capital. That global-macro firm, with about $4 billion under management, had been running money for Millennium at least since 2012.

Field Street made headlines last month for sharp losses on highly leveraged investments in Italy’s debt. Since it redeemed from Field Street last year, however, Millennium was unaffected by the debacle. What’s more, Millennium had invested in Field Street’s flagship strategy, which was largely unaffected by the losses.

Millennium also closed its accounts with Delebor Asset Management and LNZ Capital, both run by former Millennium portfolio managers. In May, LNZ launched a commingled fund that will employ the same strategy it ran for Millennium (see article on Page 3).

A source close to Millennium said the firm sees no meaningful distinction between portfolio managers on its payroll and those who work in outside firms. The external managers run many of the same strategies as Millennium’s own portfolio managers, including global-macro and fundamental and quantitative equity, and are subject to the same risk controls. In certain instances, Englander is willing to negotiate terms that allow talented traders to remain independent — in some cases running money exclusively for Millennium, but not always. Field Street and Teza, for example, both run money for multiple investors.

Several of Millennium’s in-house investment teams operate under separate business names including Blue Arrow Capital, Cannon Asset Management and Decade Capital. But they are identified in regulatory filings as “relying advisors” that operate as wholly owned units of Millennium. In fact, the only reason they use different names is to avoid confusion when equity portfolio managers running similar strategies request meetings with the same companies.

The one exception is WorldQuant, an independently owned firm with a staff of 600-plus that until this year ran money exclusively for Millennium. But even WorldQuant, led by Igor Tulchinsky, is identified in Millennium’s filings as a relying advisor that isn’t required to separately register with the SEC. In addition to managing the largest portfolio in Millennium’s flagship fund, WorldQuant recently formed a joint venture with Millennium to operate a separate quant fund. That vehicle launched June 1 with $2.3 billion.

Many of the external managers Millennium has invested with over the years previously worked in-house as portfolio managers and launched funds with Millennium’s backing. That’s true of Albar, led by Javier Velazquez in London; Centenus, led by Sara Nainzadeh in New York; and Navik, led by Ayan Sen in Singapore.

Exceptions include Crescent, a Singapore firm led by former Nomura currency trader Jai Rajpal, and Teza, founded by former Citadel quant trader Misha Malyshev.

With Field Street out of the picture, the two outside managers that have been working with Millennium the longest are Parametrica, led by former Millennium portfolio manager Xiongwei Ju, and Key Group, led by former Millennium trader Sunil Jagwani.

Millennium isn’t alone among multi-strategy fund operators in deploying capital to independent firms. Two others, Balyasny Asset Management and Citadel, avoid the practice. But Donald Sussman’s Paloma Partners and Schonfeld Strategic Advisors, the fund-management arm of proprietary-trading shop Schonfeld Group, have backed portfolio managers trading through their own firms.

Millennium’s in-house staff of more than 2,500 is the largest in the hedge fund industry. The firm, founded in 1989, has produced an annualized return of 13.7%, with minimal volatility. Year-to-date, the Millennium Partners fund was up 5.9% as of May 31.

*Green Street News is not a product of Green Street's advisory business. It is an independent business unit of Green Street Advisors, LLC. Green Street maintains information barriers to ensure the independence of the News unit and the research and advisory services provided by Green Street.

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