(Bloomberg) -- Millennium Management LLC has agreed to parcel out money to Hong Kong-based Centerline Investment Management Ltd., the latest example of a multi-strategy firm using external hedge fund managers to help bolster returns as assets expand.
Under the agreement, Centerline will trade hundreds of millions of dollars for a so-called “separate managed account” owned by Izzy Englander’s firm, said people with knowledge of the matter, who requested not to be identified discussing private information. Representatives from Millennium and Centerline declined to comment.
With assets approaching $70 billion, Millennium is the largest of more than 50 hedge fund firms globally that seek to produce stable returns with armies of investment teams employing different trading strategies. The group collectively grew by more than $230 billion since 2017, nearly tripling assets while the rest of the global hedge fund industry stagnated, Goldman Sachs Group Inc. said in reports.
The breakneck growth has intensified the war for talent. Disappointing returns last year from some of the firms led to the first decline of the group’s combined assets in at least seven years, putting more pressure on them to deliver gains to justify the high fees investors are paying.
Firms including Millennium, Balyasny Asset Management LP, Verition Fund Management LLC, Point72 Asset Management LP and Schonfeld Strategic Advisors LLC have been allocating money to external managers to supplement their own investment teams. Some of those deals involve ex-employees striking out on their own, or startups that exclusively manage money for them for years.
Partnerships like these are rare in Asia, and provide a vital source of capital for fledgling hedge funds looking to expand assets and sustain their businesses.
Managers focused on China — the world’s second-largest economy and one of the largest, most liquid stock markets in Asia — are particularly starved for money amid mounting geopolitical tensions as well as concerns about a prolonged economic slowdown. With the MSCI China Index hovering at about half of its February 2021 value, investors remain skeptical about whether the recent government stimulus can pluck the country out of its current rut. The stage is set for savvy traders who can make money from both bullish and bearish wagers.
Started by Ben Xu in 2018, Centerline runs a Greater China market-neutral equity strategy, according to its website. It uses alternative and industry-level data to help identify pairs of bullish and bearish trades based on company fundamentals, said a person familiar with its approach. Market-neutral hedge funds typically try to insulate themselves from broad market movements by balancing long and short positions.
Xu previously worked for multi-billion-dollar regional and global hedge fund firms, including Mount Kellett Capital Management, co-founded by the late Goldman Sachs executive Mark McGoldrick, regional investment giant PAG and Balyasny, according to his regulatory records. His firm oversaw about $200 million before the Millennium deal, said one of the people.
Centerline generated an annualized return of 7.5% from inception to last month, compared with a 2% loss for the MSCI China Index over the period, added the person. It made money in most years except for a low single-digit loss in 2018 and a decline of just under 10% in 2022 at the height of the pandemic and regulatory uncertainty in China, according to a fund document seen by Bloomberg News. A Eurekahedge Pte index tracking performances of Greater China-focused stock hedge funds had three annual drops in the range of 8.2% to nearly 14% each in the same period.
Other regional hedge funds backed by global multi-strategy firms include Singapore-based Keystone Investors Pte, a 2022 Schonfeld spinoff whose assets hit $2.6 billion by July. Millennium is also backing former Goldman Sachs partner Jamie Goodman’s equity capital markets hedge fund.
Japan specialist Blue Swell Asset Management, also based in the lion city, is a Point72 offshoot. Jai Rajpal’s Crescent Asset Management Asia and Ayan Sen’s Navik Capital (Singapore), once backed by Millennium, were folded into Englander’s hedge fund giant in the past year.
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