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Millennium Management and Schonfeld in partnership talks

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Millennium Management LLC and rival Schonfeld Strategic Advisors were reportedly in advanced talks for a partnership deal on Oct. 10.

Millennium Management is a global alternative investment management firm that operates as a hedge fund, employs over 5,000 people and manages $59 billion in assets. Schonfeld Strategic Advisors is an American hedge fund with $13 billion in assets under management and employs over 1,000 people.

According to The Financial Times, Millennium Management would gain access to over 100 investment teams at Schonfeld. However, Schonfeld would remain independent and incorporate Millennium’s long-term capital from the deal “to fuel the growth of the business.”

Schonfeld previously held informal discussions with Millennium Management regarding a potential partnership in March 2020 when its fund was down 16%. However, investors in the Middle East and Asia raised $2 billion to maintain its position.

Schonfeld again faces a lackluster performance, with its year-to-date equity fund returning 0.9% to investors compared to Millennium Management’s 7.6% year-to-date performance, according to data from Business Insider.

Previously, Schonfeld halved its fees to make clients agree to new lock-in and withdrawal terms of a one-year lock-in period. When the period expires, investors could withdraw 25% of their invested capital per quarter.

“Is this a rescue act for Schonfeld?” a senior executive at a London-based rival told The Financial Times. “It’s quite a big step to take that much money from a peer. It’s not what you’d do if you had free choice.”

Millennium Management conducted a similar deal with WorldQuant, a quantitative asset management firm managing $7 billion on Millennium Management’s behalf that serves as one of the companies’ key drivers in returns.

The Financial Times concluded that the deal “presents an opportunity for Millennium to diversify its business” due to Millennium Management gaining access to over 100 investment teams in Schonfeld that specialize in the hedge fund’s quantitative and automated global trading strategies.

A hedge fund is a private investment partnership where a pool of accredited investors invests in a fund managed by professional fund managers who use various strategies to earn investment returns.

Accredited or institutional investors have an annual income of more than $200,000 or a net worth of $1 million. These investors are the only ones allowed to invest in a hedge fund because fund managers typically use high-risk, high-return investment strategies in delivering investment returns.

Additionally, hedge funds limit opportunities to cash in or withdraw investments and will typically impose a locked period of one year or more, depending on the hedge fund. 

Schonfeld and Millennium Management are multi-manager hedge funds with multiple specialized funds, each with a profit and loss statement, allowing them to invest in different sectors and markets.

Multi-manager hedge funds continuously look to hire the most specialized and efficient fund managers — an extremely costly process — and fund these talent acquisitions through a pass-through expense model to investors.

Pass-through model fees are typically around 3% to 10% of these costs and are expenses needed to operate the fund.

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