Millennium stake sale hints at hedge fund woes
02/07/2025 19:13
The author is a Reuters Breakingviews columnist. The opinions expressed are his / her own. By Sebastian Pellejero NEW YORK, July 2 (Reuters Breakingviews) - When a hedge fund titan taps outside money, take note. Millennium Management founder Izzy Englander is looking to sell a stake for the first time in the firm’s history, the Financial Times reported. Despite years of hype over the model he helped to pioneer, this looks less like a cash grab and more like a crack in the $4.5 trillion hedge fund façade. Millennium is a multi-manager, sometimes dubbed a pod shop, a reference to its semi-autonomous teams of investment managers operating under one collective roof. Ruthlessly strict risk management and efficiencies of scale have boosted both Englander’s operation and peers like Citadel. Since launching in the 1990s with under $40 million a piece, these two firms have grown to manage over $140 billion, nearly 40% of the multi-manager segment's assets, according to Hedgeweek. Though its results are undisclosed, a 1% management fee on Millennium’s $75 billion of assets would generate $750 million a year, implying that it may be valued at 19 times this income stream. At first glance, that looks hefty: hedge fund Man Group EMG.L steers $168 billion yet trades at just 2.5 times its take. Look closer, though, and the price looks less impressive. Assume Millennium can keep 70% of those management fees after costs, or $525 million. The firm also takes a cut of investment performance, which might work out to around $2 billion annually, a touch below its $2.3 billion haul based on 2024's 15% return and standard 20% take. Investors generally value this volatile, market-dependent income at a discount to stable levies for handling money. Still, on a multiple of 18 times for management earnings and 4.5 times for the incentive slice, the firm should be worth around $18 billion. Industry headwinds help explain any markdown. Citadel boss Ken Griffin warned in November that the multi-manager boom is over, citing overcrowded trades and bidding wars for talent. It opens a rare door for conventional asset managers. Traditional stock-picking mutual funds focused on U.S. companies saw net outflows of nearly $2 trillion between 2022 and 2024, according to Morningstar. Most actively managed funds lagged their benchmarks last year, per S&P Global. A stake in a shop as sophisticated as Millennium offers top-class performance, marketing ammo, and fee streams protected from the price war in exchange-traded funds. In return, Englander could get access to fresh streams of capital and a massive platform. Research shows hedge funds that sell stakes launch more products and pull in bigger inflows, even with flat performance. Locking in cash today funds expansion and cushions rising talent costs without adding leverage. That’s good for both sides – but in this case, it might be even better for the buyer. Follow Sebastian Pellejero on LinkedIn. CONTEXT NEWS Millennium Management is in talks to sell a minority equity stake to outside investors for the first time in its history. The multi-strategy hedge fund is working with Goldman Sachs’ Petershill division to find potential buyers for a 10% to 15% stake that values the company at $14 billion, the Financial Times reported on June 16. Millennium's rumored valuation suggests modest multiple https://www.reuters.com/graphics/BRV-BRV/lbvgzgnbmpq/chart.png (Editing by Jonathan Guilford; Production by Pranav Kiran) ((For previous columns by the author, Reuters customers can click on PELLEJERO/ Sebastian.Pellejero@thomsonreuters.com))