Hedge fund Millennium is providing money to Hong Kong’s midline

(Bloomberg) — Millennium Management LLC has agreed to sell money to Hong Kong-based Centerline Investment Management Ltd. to distribute, the latest example of a multi-strategy firm using outside hedge fund managers to boost returns as assets rise.

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Under the agreement, Centerline will exchange hundreds of millions of dollars for a so-called “separately managed account” owned by Izzy Englander’s company, said people familiar with the matter, who spoke on condition of anonymity discussing private information. Representatives for Millennium and Centerline declined to comment.

With assets approaching $70 billion, Millennium is the largest of more than 50 hedge fund firms worldwide that seek to generate stable returns through legions of investment teams employing different trading strategies. The group has grown by more than $230 billion overall since 2017 and has nearly tripled its assets, while the rest of the global hedge fund industry has stagnated, according to Goldman Sachs Group Inc. reports.

Rapid growth has intensified the battle for talent. Disappointing returns from some companies last year led to the first fall in the group’s total assets in at least seven years, increasing pressure on it to make profits to justify the high fees investors are paying.

Companies such as Millennium, Balyasny Asset Management LP, Verition Fund Management LLC, Point72 Asset Management LP and Schonfeld Strategic Advisors LLC have provided money to outside managers to supplement their own investment teams. In some of these deals, former employees become self-employed or start up startups that exclusively manage money for them for years.

Partnerships like these are rare in Asia and represent an important source of capital for young hedge funds looking to grow their assets and sustain their businesses.

Managers focused on China – the world’s second-largest economy and one of the largest and most liquid stock markets in Asia – are particularly cash-strapped amid rising geopolitical tensions and concerns about a prolonged economic slowdown. With the MSCI China Index at about half its February 2021 value, investors remain skeptical about whether recent government stimulus measures can lift the country out of its current slump. The stage is set for savvy traders who can make money on both bullish and bearish bets.

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Founded in 2018 by Ben Xu, Centerline follows a market-neutral equity strategy for Greater China, according to its website. It uses alternative and industry-specific data to identify bullish and bearish trading pairs based on company fundamentals, said a person familiar with the approach. Market-neutral hedge funds typically attempt to insulate themselves from general market movements by balancing long and short positions.

Xu previously worked for multibillion-dollar regional and global hedge fund firms including Mount Kellett Capital Management, co-founder of late Goldman Sachs executive Mark McGoldrick, regional investment giant PAG and Balyasny, according to his regulatory filings. His company managed around $200 million before the Millennium deal, one of the people said.

Centerline generated an annual return of 7.5% from inception to last month, compared with a loss of 2% for the MSCI China index over that period, the person added. The company has made money in most years, except for a low-single-digit loss in 2018 and a nearly 10% decline 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, which tracks the performance of Greater China-focused equity hedge funds, posted three annual declines over the same period, each ranging from 8.2% to nearly 14%.

Other regional hedge funds backed by global multi-strategy firms include Singapore-based Keystone Investors Pte, a 2022 spinoff from Schonfeld, whose assets reached $2.6 billion as of July. Millennium also supports former Goldman Sachs partner Jamie Goodman’s equity capital markets hedge fund.

The Japanese 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 England’s hedge fund giant last year.

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