Monday, May 27, 2024

Schonfeld’s Millennium move shows cost pressure on multi-strats

Photo by Jason Krieger on Unsplash

Multi-strat managers have a tenth more staff in investment roles compared to the rest of the hedge fund elite, according to analysis of regulatory filings by AFI earlier this year.

That comes at a high price, with the war-for-talent raging and trader bonuses and sign-on fees at record levels.

And it is a price that Schonfeld, which has been on a hiring blitz in the last couple of years, is acutely aware, given this week’s reports that larger rival Millennium may give it some capital to manage.

The FT reported that the firms were in advanced talks over such an arrangement, which would be without precedent in the multi-strat world. Schonfeld performance has recently lagged the likes of Citadel and Millennium, putting it under cost pressure after the hiring spree.

The news puts the spotlight on the “pass-through” fee model which has facilitated the spree, with investors footing the bill for trading hires in multi-strat world.

Staff costs rise in line with asset growth at multi-strats as more “pods” of traders are added — but those costs are hard to shift if AuM declines. And remaining LPs can be left with a bigger bill if others redeem.

The development leaves Schonfeld with possibly its greatest challenge since it was founded in 1988. And the wider industry is sure to renew scrutiny of the multi-strat model, which has drawn criticism from former Man Group boss Luke Ellis and others.

AFI members have exclusive access to the Power List of the 64 firms worldwide with more than $10bn in hedge fund assets, featuring headcount breakdowns and analysis.