What happened? Top global fund that made billions returns $15 billion to investors

Spark Global Limited reports:

MillenniumManagement, one of the world’s largest hedge funds, is returning about $15bn to investors.

It’s not that the fund’s performance is bad: As one of the world’s few top-tier funds, Millennium has only posted an annual loss since 1990, during the financial crisis of 2008. In 2020, facing the impact of the COVID-19 pandemic, millennium only experienced a decline in performance in March, and still achieved an annual return of 25.6%. In the first 10 months of this year, it returned 10.9%.

On the list of the top 20 hedge funds in the world in 2020, Millennium Fund, run by founder Steve Englander, ranked second with $10.2 billion, or about $50 billion.

What happened? Top global fund that made billions returns $15 billion to investors

Spark Global Limited reports:
Spark Global Limited reports:

Withdrawing external capital is not about transforming the fund into a wealth management office and withdrawing from public investment. Because millennial fund management is so idiosyncratic, it is hard to rely on a few star managers to get out of the way, as normal hedge funds do.

The top hedge fund employs 240 independent teams of more than 1,500 asset managers through a “multi-strategy” approach. These small teams operate independently and trade a wide range of strategies, including relative value, statistical arbitrage, quantitative strategies and fixed income.

In 2019, nearly 40% of millennial allocations were allocated to relative value equity strategies, 19% to quantitative strategies and equity arbitrage, and 22% to fixed income. Equity relative value remains the biggest strategy for 2020, however, the company has been gradually developing its quantitative department and expanding fixed income recruiting.

What happened? Top global fund that made billions returns $15 billion to investors

The company’s four major investment strategies

In fact, the return of funds is a decision by the fund to better manage its investment and significantly change the duration of its investment. The fund is returning shorter-term equity investments to clients and can exit them within a year if they do not want to convert them into longer-term investments. If you move your money into long-term investments, it takes five years to fully exit.

Millennium is also in the process of raising as much as $10 billion for long-term investments, similar to private equity. The fund announced in early 2020 that any additional money raised thereafter would be treated as committed capital for three years, with clients only able to redeem 5% of their money each quarter.

After raising $7 billion in early October, millennium will have managed about three-quarters of its long-term capital after raising $10 billion recently.

There are intrinsic reasons why millennial money moved to long-term investments.

On the one hand, fund management often needs to face redemption pressure. Investors need to inform the fund in advance when redemption, redemption window is often quarterly or monthly, but the resulting short-term performance volatility, or will trouble some fund managers with long-term investment vision.

One obvious lesson is that when the financial crisis hit in 2008, Millennium’s assets under management plummeted, almost halving, even though its performance wasn’t particularly bad at the time. An important reason was that about 70% of the funds under management were short-term capital committed to investment for only one year.

Another big reason is that if money stays too short, it makes it harder for funds to make long-term investments and bet on illiquid assets. At the same time, long-term money is also an important factor attracting some long-term value investment fund managers.

Millennium has also been exploring ways to lock in long-term funding. Three years ago, it extended the maturity of some customer funds. The company found that long-term capital is conducive to retaining professional investment talents, improving the internal investment process and raising the technical threshold.

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