A year ago Bobby Jain, a top executive at Millennium Management who was regarded by many at the hedge fund as a potential successor to Izzy Englander, abruptly departed.
It had become clear to him that the firm’s 75-year-old founder was not going anywhere. Englander had also grown uncomfortable with the idea of one person replacing him, according to people familiar with the situation.
Since launching in 1989 with just $35mn, New York-based Millennium has grown into one of the world’s largest hedge funds, managing $60bn in assets, employing 5,400 people in 17 offices worldwide and notching up average returns of about 14 per cent a year.
Employee capital accounts for almost $10bn of Millennium’s assets, aligning staff with investors, but where other hedge funds have distributed equity among crucial people, Englander still owns 100 per cent of the firm.
Such concentration is “not a good idea”, said one person who works closely with Millennium. “But you still have to convince Izzy of that.”
Where the firm goes from here, and whether it can continue to thrive without its founder, are questions playing out in different ways across the $4tn global hedge fund industry.
The swashbuckling figures who have dominated the sector for decades transformed what were essentially proprietary trading shops managing money for wealthy individuals into Wall Street behemoths that count some of the world’s largest institutions as their clients. Their ascent illustrates how post-crisis regulation designed to make banks safer has shifted their risk-taking to less regulated parts of the financial system.
“Unlike the private equity industry, where some of the giants have moved to a younger generation of leadership, several of the world’s largest hedge funds are still grappling with how to evolve from their dominant founders,” said Thomas Raber, founder of alternative advisory and placement firm Alvine Capital.
They include Millennium, Ray Dalio’s Bridgewater and quantitative specialist Two Sigma, according to investors.
Englander declined to comment. While he tells people he never plans to retire, he has also emphasised Millennium’s transition into a firm with shared leadership.
“Whereas once upon a time Millennium was small enough for me to carry out the required supervision of our activities alone, we now employ a multi-layered and specialised approach to oversight,” he wrote to investors in a February letter seen by the Financial Times, adding that the moves were aimed at positioning the firm “to flourish long into the future”.
Englander has established a trustee advisory board, which includes Rockefeller Capital Management chief executive Greg Fleming; secured Millennium’s capital base by moving the vast majority of investors into a long-term share class; and built out its leadership team — notably by aggressively hiring Goldman Sachs alumni.
Millennium has expanded its footprint on Wall Street by investing money with dozens of smaller funds through separately managed accounts. The Financial Times revealed last month it was in talks to put billions of dollars to work with its smaller rival Schonfeld Strategic Advisors. But the two firms called off partnership talks on Tuesday, according to two people familiar with the matter.
Englander’s age gives Millennium’s succession strategy added urgency. So do signs that higher interest rates and a costly war for talent may be taking their toll on the multi-manager business model after years of exceptional returns. Millennium is up 8.3 per cent in the first 10 months of the year, according to investors.
In Englander’s absence control would pass to the trustee advisory board, which would appoint new leadership, according to people familiar with the situation.
“We’ve seen different senior people coming and going . . . We would like to see more clarity on succession,” said one investor.
The issue has taken on a heightened importance for clients, whose money is tied up in the firm for years. The removal of a so-called key man clause, which Millennium presents as a commitment to ensuring the stability of the business, means investors have no special option to redeem if something happens to Englander.
Millennium’s “growth in recent years means it can now dictate adverse terms in a way that is deeply uncomfortable”, said the investor, who was “especially concerned about liquidity terms being extended”.
Englander started out as a specialist clerk on the floor of the American Stock Exchange in the 1970s before becoming a market maker then founding Millennium, initially trading derivatives and options as well as merger arbitrage.
Millennium was forced to sharpen up risk oversight after it agreed in 2005 to pay $180mn to settle insider trading allegations brought by then-New York attorney-general Eliot Spitzer. Neither Millennium nor Englander admitted to any wrongdoing.
Then came the financial crisis. Millennium suffered a 3 per cent loss in 2008, its only down year, but investors yanked their cash and assets halved to $7bn.
The firm decided to strengthen its asset base by rebuilding the business with long-term investors, led by John Novogratz, Millennium’s global head of capital development and investor relations. Half of its assets are now from institutional clients such as Middle Eastern sovereign wealth funds and large pension funds, just over a third comes from the private banking arms of large lenders including JPMorgan and Goldman Sachs, while 16 per cent is money from Englander and employees.
In 2008 Englander hired Michael Gelband from Lehman Brothers to build out the firm’s fixed-income trading business, which grew into one of Millennium’s main profit engines.
That set Gelband up as heir apparent in the eyes of some outsiders but he left in 2017 following a dispute with Englander, according to several people familiar with his departure.
The acrimonious exit prompted him to name his new fund ExodusPoint Capital in a nod to the Book of Exodus which details the origin story of the Israelites leaving slavery in Egypt, two people familiar with the firm said. Gelband declined to comment.
As Millennium grew it continued to institutionalise, hiring Jain in 2016 as Englander’s first co-chief investment officer. After a stellar 2020 when the fund gained 26 per cent, Englander hired three former Goldman partners — Paul Russo, Scott Rofey and Jeffrey Verschleiser — to lead the risk management of the firm’s respective equity, macro and rates, and credit divisions.
Jain was then seen by many insiders and investors as Englander’s likely successor — a misperception according to one person close to Millennium, who said: “Bobby and Mike were never successors to Izzy.”
Millennium had grown into a much larger and more diversified organisation, and Englander was reluctant to identify just one person to lead the business.
Jain, who declined to comment, left in November 2022 and plans to launch his own hedge fund Jain Global in what could surpass ExodusPoint as the industry’s largest ever launch.
His departure coincided with a reshuffle of Millennium’s top ranks and a new organisational structure that divided responsibilities.
Millennium’s chief operating officer Ajay Nagpal took on the additional role of president. The firm announced a new “office of the chief investment officer”, hiring Justin Gmelich, another former Goldman partner, as co-CIO alongside the promoted Russo and the two heads of risk management, Rofey and Verschleiser.
“Izzy, whether knowingly or unknowingly, has turned Millennium into Goldman Sachs Asset Management,” said one person who knows him well.
Tapping Goldman executives suits Englander because “Izzy likes the concept of committee, and there are two things he likes in particular about former Goldman people,” said one insider. “They tend to respect hierarchies, and they are used to co-heads and committees.”
Millennium, with more than 300 investment teams, increasingly resembles the markets division of a global bank, which some sceptics say has resulted in more bureaucracy.
“By publicly naming a successor you’re just setting yourself up for future problems,” said another insider.
Millennium’s top ranks are a “giant mishmash”, said the first insider. “But don’t bet against Izzy — if it’s not working, he’ll fix it.”
Millennium has also strengthened its capital base, shifting the balance of power away from investors.
Two years ago the firm returned $15bn to investors and encouraged clients to shift to a new share class, increasing the time it takes to exit in full from one year to five and rejigging its capital base in an unprecedented way in the hedge fund industry.
This was designed to avoid a repeat of 2008, when investors pulled their cash at short notice. Millennium has said that a stable business is a draw for talent and supports investments in technology and infrastructure. A person close to the firm added that “there is no need to add complication by diluting the ownership, unless for a key strategic opportunity”.
But the first insider disagreed, saying “not having equity partners is a bull market trade. When things go wrong people can just walk out the door because they’re not tied to the organisation”.
From July this year, clients agreed to always pay a minimum fee on top of the cost pass-through and regardless of performance. Investors will now pay annual fees of about 1 per cent of assets or 20 per cent of investment gains.
Bankers say this amounts to a management fee, which the market values more highly than more volatile performance fees. This makes it easier to put a valuation on the hedge fund manager, which could pave the way for a sale of a minority stake in the business. A logical buyer could be an alternatives group or a sovereign wealth fund.
Those who know Englander well are not discounting another sleight of hand.
“Izzy will do something quite unexpected,” said one rival hedge fund manager. “Where he’s brilliant is he always knows the moment.”