$100m PM Payouts, Millennium’s $14B Valuation & the Model Debate
Citadel, MLP, BAM pay $100m for a single PM, Millennium valued at $14b, the role of the financial model in the investment process
The Wall Street Journal came out with an article a few days ago about how multi-managers like Citadel, Millennium, Balyasny can spend $100 million on a single portfolio manager.
Just three weeks ago, we published our piece on what makes the very best portfolio managers at these multi-managers (and beyond) so successful. One of the people we highlighted, Steve Schurr, was also mentioned in the article. According to WSJ, he ran one of the largest and best-performing books at Balyasny, generating $250 million and $150 million in gross profits in 2024 and 2023, respectively.
I recommend reading our write-up and all parts of Mt. Rushmore series, where we share insights from conversations with the best multi-manager PMs, as well as watching Allen White teach his investment process and our guest speaker session. First, because there is a clear common denominator among the top PMs. Second, because it forces you to rethink the typical pod PM approach to investing of high turnover and shorter holding periods with a focus on near-term catalysts and earnings revisions. The problem is that now more and more PMs are doing it and getting in the same crowded trades, which shortens the alpha curve and things get priced in relatively quickly. You have probably heard this many times before, but it’s a real phenomenon becoming more of a problem. By design, this game is zero-sum or finite. There is only so much alpha and so many people that can capture it in these shorter-term setups. Not to mention it means more risk and faster blowups. It pays to be different.
I’m working on a couple of new exciting additions to the Mt. Rushmore series. In the meantime, we are returning to our Zero to One on a Stock series this Friday. Make sure you don’t miss it.
Back to the WSJ article: It’s a great story, written almost like a novel and engaging for the casual reader. A few things stood out:
$100 million (potential) payout packages… might actually be worth it?
It mentions Peter Goodwin, who spent 8 years at Point72 and is considered one of the most respected portfolio managers in the industry. He started an equities unit within Balyasny (BAM) called Longaeva Partners. It operates under BAM’s platform, leveraging its infrastructure (risk systems, data, HR, capital, etc.), but it functions as his own long/short equity fund. All of Longaeva’s capital comes directly from BAM. The article also mentions how much capital Longaeva is likely to manage once fully ramped up with multiple teams under its umbrella:
Longaeva will have a market footprint of up to $15 billion including borrowed money, a scale that dwarfs what upstart hedge funds can deploy.
If we do some quick back-of-the-envelope math, BAM manages roughly $20 to $25 billion in AUM, give or take a few billion depending on redemptions or inflows.
If Longaeva Partners is expected to run ~$15 billion including borrowed capital, that likely equates to ~$3 to $5 billion in actual equity capital (assuming 3–5x leverage), which means he could be managing ~15–25% of BAM's total AUM directly.
Make your own conclusions, but given the track record of the PMs involved, those crazy payout packages you see online might actually make sense (ignoring the specifics of comp and fee structures).
As one investment officer at the Texas Tech University System said in the article:
“Everyone brings up the fees, but all I care about are net returns (returns after all fees)”. Hard to argue with that…
The article also raises the question - why should some star PMs even bother starting fully independent hedge funds? If they can get to use all the incredible resources MMs offer? Infra, tech, data, get help with every aspect of running the business. Not to mention they can potentially end up managing capital at a scale most people never touch.
What’s the role of the model in the investment process?
There has been a small debate online recently about the importance of financial models in the investment process. We are going to talk a lot more about this, but the bottom line is - it is a spectrum (as with anything else in fundamental investing). On one end, you find very successful teams who almost fully outsource their model-building. On the other, you see equally successful investors who build every model meticulously from scratch, line by line, and maintain it religiously. Then there are those in the middle, doing a mix of both, and many other successful teams somewhere along that spectrum.
People just like being told what to do or given a “secret” formula to follow instead of developing their own style and process. Find what works for you.
Millennium looking to sell a minority stake at a $14b valuation
Another interesting piece of news came out yesterday from the Financial Times - Millennium is looking to sell a minority stake (10-15%) to external investors at a $14 billion valuation. Here are some quotes from the article:
It is the first time a formal valuation has been put on the hedge fund.
The discussions with external investors come as Millennium is working on a plan to open up the ownership of the management company to its top executives for the first time by distributing equity to its key people.
Englander has also built out Millennium’s leadership team with a series of senior hires from Goldman Sachs, explored diversifying the business with new strategies, and changed its fee structure so that investors are now required to pay a minimum fee regardless of the fund’s performance. Annual fees, on top of expenses, are now about 1 per cent of assets or 20 per cent of investment gains, something bankers described as akin to a management fee.
Hedge funds are typically valued on the basis of their management fees — around 1-2 per cent of overall assets — and the performance fees they generate. Management fees are seen as more predictable revenues and are ascribed a higher valuation by the market than sometimes volatile performance fees.
See you Friday!