BlackRock in talks to take minority stake in Millennium | USAEMALL.com

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BlackRock is in early-stage discussions with Millennium Management about a strategic partnership that could see the world’s largest asset manager take an equity stake in one of the most profitable hedge fund managers, according to people familiar with the situation. 

Although any equity stake is likely to be small, the potential tie-up reflects how BlackRock is seeking to expand into alternative investments and shows how Millennium’s 76-year-old founder Izzy Englander is continuing to build out and diversify his business.

Talks were at an early stage and may not lead to a deal, the people said. If the sale of an equity stake to BlackRock did come to fruition, it would mark the first time in its 35-year history that Englander has taken outside investment in Millennium’s management company. 

BlackRock and Millennium both declined to comment. 

Millennium has for years debated the merits of striking strategic partnerships or taking external investment, with incoming interest from groups ranging from private equity firms to sovereign wealth funds.

Last year, the hedge fund manager held talks to put billions of dollars to work with its smaller rival Schonfeld Strategic Advisors, but these were later called off when Schonfeld’s existing investors said they would give it more money to manage. 

Where other hedge funds have distributed equity among their top people, Englander still owns 100 per cent of Millennium, which he launched in New York in 1989 with just $35mn and has since grown to employ 5,900 people globally and manage $69.5bn in assets.

BlackRock chief executive Larry Fink has identified alternative investments, which carry higher fees than traditional investment funds, as a strategic priority and has been on an acquisition march. Since the start of the year, the group has struck deals to buy Global Infrastructure Partners and Preqin, an alternatives data provider, and is in talks with private credit manager HPS.

BlackRock has also held preliminary conversations with a much wider range of potential partners that have yet to bear fruit. It uses a variety of dealmaking structures, from buying outright to joint ventures and taking minority stakes and doing investment partnerships.

The $11.5tn money manager has $450bn in alternative assets under management, now that the GIP deal has closed. That includes $76bn in hedge funds and other “liquid alternatives”, but BlackRock is not considered a standout player in that section of the industry. 

Millennium and Ken Griffin’s Citadel are the pioneers in the multi-manager sector, the fastest-growing and most lucrative corner of the $4.5tn hedge fund industry.

Millennium, which has more than 330 investment teams operating within strict risk controls, at present has just one flagship fund which has gained 10 per cent in the first 10 months of the year. It has notched up average returns of about 14 per cent a year since launch, according to investors. 

It is considering launching its first fund in more than three decades in a bid to target less liquid assets, including private credit, and help it sustain growth.

Englander has in recent years sought to institutionalise Millennium as part of a succession planning process, to provide stability when he eventually departs.

He established a trustee advisory board; secured Millennium’s capital base by moving the vast majority of investors into a long-term share class that takes five years to fully redeem; and has built out its leadership team — notably with senior hires from Goldman Sachs.

He also changed the firm’s fee structure last year, adding a minimum fee for investors on top of the expenses which are passed through and regardless of performance. Investors pay annual fees of about 1 per cent of assets or 20 per cent of investment gains. 

At the time, bankers said that this amounts to a management fee, which the market values more highly than more volatile performance fees. They suggested that this makes it easier to put a valuation on Millennium, which could pave the way for a sale of a minority stake in the business.