It was about 5 p.m. in New York on Tuesday when Steven Schonfeld picked up the phone to call fellow hedge fund billionaire Izzy Englander.
The deal was off.
For months, executives at the two hedge funds had tried to hash out a partnership agreement that would have been the first real sign of consolidation among mega-multimanager firms. The deal captivated the industry, and speculation swirled over how many billions Millennium might invest in Schonfeld Strategic Advisors — and what sweetened terms it could demand from its struggling rival. Schonfeld’s funds have barely made money this year, and clients pulled $2.3 billion.
Ultimately Schonfeld backed out after securing up to $3 billion in verbal commitments from new and existing investors, including pensions and Middle East sovereign wealth funds, according to people familiar with the matter. The move came two days before Schonfeld clients faced a redemption deadline, suggesting the firm didn’t expect significant outflows and that its biggest investors were likely to stay put.
Spokespeople for both firms declined to comment.
As part of the new plan, Schonfeld will cut some jobs — mostly non-investment personnel — to reduce expenses after a period of rapid growth and a costly talent war in the industry, the people said. The firm has grown to about 1,000 employees, of which 270 are portfolio managers and analysts.
The newly raised cash will be in a drawdown facility, meaning the firm can call on it as needed. Once Schonfeld puts that money to work — and it has two years to do so — investors won’t be able to make withdrawals for three years.
Had the deal gone through, Millennium could have leveraged more than 100 investment teams at Schonfeld, which managed $11.7 billion at the start of this month. Millennium’s assets have jumped by a third in the past three years and now total $60.6 billion.
Schonfeld’s main fund is up more than 1% this year through October, trailing the S&P 500’s 11% advance and putting it at the bottom of the pack when compared to multistrategy peers. It also lagged rivals in 2022. Its Fundamental Equity fund gained more than 2% this year, the people said.
Earlier this year, Schonfeld offered a hefty fee discount to clients in its equity fund in exchange for locking up their capital longer, so that it will take them as much as two years to be able to withdraw all of their cash. They’re joining a broader push by multimanager funds to hang on to investor cash for longer to avoid being hit by frequent redemptions or big cuts in annual income.
Investors have flocked to multimanager firms such as Millennium, Citadel and Schonfeld in recent years because such funds, with their pods of traders with varied skills and expertise, tend to churn out consistent returns in a variety of market environments.
--With assistance from Katherine Burton and David Scheer.
