Asset Management: Millennium’s succession dilemma

This week I bring you two tales of succession — or lack thereof — at two of the world’s top alternatives managers: hedge fund Millennium Management and private equity firm Ardian. The alternatives industry is notoriously full of dominant and entrepreneurial founders who have single-mindedly pursued their vision. That doesn’t always mean that they find it easy to step back when the time comes. Which firms do you think have nailed the transition to the next generation, and what can we learn from them? Email me: harriet.agnew@ft.com

Millennium prepares for life after founder Izzy Englander

A year ago Bobby Jain, a top executive at Millennium Management who was regarded by many at the hedge fund as a potential successor to Izzy Englander, abruptly departed.  

It had become clear to him that the firm’s 75-year-old founder was not going anywhere. Englander had also grown uncomfortable with the idea of one person replacing him. 

Since launching in 1989 with just $35mn, New York-based Millennium has grown into one of the world’s largest hedge funds, managing $60bn in assets, employing 5,400 people in 17 offices worldwide and notching up average returns of about 14 per cent a year. 

There are several factors that give a need for clarity around Millennium’s succession strategy added urgency, as my colleague Ortenca Aliaj and I explore in this deep dive. 

Among them are Englander’s age, his 100 per cent ownership of Millennium (although capital from him and employees accounts for almost $10bn of its assets), and the fact that clients have tied up their money in the firm for years. Meanwhile the removal of a so-called key man clause, which Millennium presents as a commitment to ensuring the stability of the business, means investors have no special option to redeem if something happens to its founder.

This comes amid signs that higher interest rates and a costly war for talent may be taking their toll on the multi-manager business model after years of exceptional returns. Just ask Millennium’s smaller rival Schonfeld Strategic Advisors, which last week announced it is cutting 15 per cent of its workforce in a cost-cutting drive, days after walking away from partnership talks with Millennium.

Englander tells people he never plans to retire, but he has also tried to emphasise Millennium’s transition into a firm with shared leadership. “Whereas once upon a time Millennium was small enough for me to carry out the required supervision of our activities alone, we now employ a multi-layered and specialised approach to oversight,” he wrote to investors in February, adding that the moves were aimed at ​positioning the firm “to flourish long into the future”. 

He has established a trustee advisory board, which includes Rockefeller Capital Management chief executive Greg Fleming; secured Millennium’s capital base by moving the vast majority of investors into a long-term share class; and built out its leadership team — notably by aggressively hiring Goldman Sachs alumni. 

Where the firm goes from here, and whether it can continue to thrive without its founder, are questions playing out in different ways across the $4tn global hedge fund industry. Read our full report here 

Ardian: the European private equity powerhouse with a succession problem

On the evening of September 27, France’s financial and political elite mixed with Middle Eastern royalty at the Palais Garnier, an ornate opera house in the heart of Paris.

The 1,000-strong crowd was gathered to pay homage to Ardian, one of Europe’s largest investment firms, and its chief executive Dominique Senequier. It was the tenth anniversary of its spinout from French insurance company Axa, a deal dubbed “the robbery of the century” by a rival, and likely the best deal of Senequier’s investment career.

One person who attended the party joked that it was grander than a state banquet for King Charles III at the Palace of Versailles a week earlier, Will Louch, Sarah White and I report in this deep dive. It was certainly a reminder of the 70-year-old’s status as one of the $13tn private equity industry’s most powerful figures and the dominance she still wields after almost three decades at the top of her own firm. 

But behind the scenes, Ardian is on a less sure footing. An exodus among the top ranks has cemented the position of Senequier — described by one person who knows her as “the smartest person in the room, whatever the room” — but placed into sharper focus what happens when she steps back. 

The $156bn firm is lining up Mark Benedetti, a US-based former accountant, to lead it one day. It has been talking with investment banks including Evercore, Goldman Sachs and Morgan Stanley over its future strategy at a time when a golden era for private equity fundraising and dealmaking has ended. Some investment bankers are touting a tie-up between Ardian and Tikehau Capital, a €42bn competitor in the alternatives sphere.

Ardian has also had to improve on an internal culture where senior male executives have faced scrutiny for their behaviour towards other employees.

But when — and whether — Senequier decides to relinquish control remains unresolved. 

“Succession within Ardian is a real issue,” said one longtime executive. “If she doesn’t give the new management team sufficient power in the coming months and years . . . it will be a disaster for the company.” Read the full story here

FOAM Europe: The highlight reel

Asset managers are trying to adapt to a world where interest rates are “higher for longer”, geopolitical risks are the highest in half a century, and there’s a climate crisis, a pensions crisis and a cost of living crisis. What better time than to gather some of the top minds in the business to hear how they’re navigating all of this?

Some of the biggest names in the business gathered in London last week at our Future of Asset Management Europe conference, hosted in collaboration with Ignites Europe, to give us their thoughts. Read on to hear the top highlights from FOAM Europe, or see all of the action here.

Asset managers need to ‘step up,’ says outgoing Legal & General chief

Nigel Wilson, the outgoing chief executive of Legal & General, has called on the asset management industry to “step up” and become problem solvers to fight the pressures on its business model.  

“We’ve relied too much on market movements, which has accounted for 90 per cent of the industry’s overall revenue growth for a very long period of time,” he said. “Now we have to roll up our sleeves, get stuck in and solve some problems: the biggest is the pension industry.”

Wilson urged asset management groups to think creatively and widen their business models, helping to channel more pension money into private assets and using artificial intelligence technology to “democratise” investment advice. “The asset management industry is in too narrow a box and doesn’t think of the wider things it could do,” he added. 

Wellcome Trust warns of private equity ‘shakeout’

Nick Moakes, chief investment officer of the £38bn Wellcome Trust, reckons that the private equity industry is facing a “shakeout” that could result in painful losses for investors who piled into the sector without properly understanding the risks of holding illiquid assets.

Years of low interest rates have attracted a wave of “tourist capital” into private equity, said Moakes. “It’s people who are investing in assets that have inappropriate risk profiles for them, which is many types of money, but it’s all been prompted by the fact that capital was free, and it will wash out.”

He says this “shakeout process” is already under way as investors try to unlock capital invested in private assets, sometimes by offloading stakes in private funds at knockdown prices. “Secondary sales of really quite high-quality private equity funds are starting to appear, which you wouldn’t normally expect, except from people who’ve realised they’ve got too much of the stuff,” he added.

Governments and private sector must work tighter to secure energy transition, says BlackRock

Governments and the private sector must work together to achieve the scale of investment that’s needed for the energy transition to be effective, according to Stephen Cohen, head of Europe, the Middle East and Africa at BlackRock, the world’s largest asset manager. 

“Energy investment is running at $2tn a year — we and others think we need to double that,” he said. “And it will be every year for two or three decades.”

Cohen said that a key theme will be the use of so-called “blended finance”. 

“The reality is for the transition to be effective, it’s not going to be funded by governments, they don’t have the money, it’s not going to be funded purely out of the private sector,” he added. “It’s going to be how you bring these different components together, both in terms of capital but also in terms of facilitating how capital works.” 

Five unmissable stories this week

Jim Chanos, one of Wall Street’s most prominent bears, is closing his main short-focused hedge funds after more than three decades. Chanos is best-known for his bet against energy trader Enron, as well as for his more recent, but unsuccessful, campaign against electric-car maker Tesla.

Manulife is buying CQS, marking the end of an era for its founder Sir Michael Hintze. The Tory donor and philanthropist will step back from his firm as the Canadian money manager bulks up in private credit.

Terry Smith, the founder of Fundsmith who is considered one of the UK’s best-known fund managers, was paid £31mn last year, despite his biggest fund underperforming its benchmark for much of the past three years.

James Bayliss, the head trader at Elliott Management in London, has left the firm, the latest departure of a long-serving member from the $59bn US hedge fund’s main European office.

In Australia, high-growth superannuation funds used by the majority of younger savers have typically delivered 8.8 per cent annualised returns over the past decade. Can the UK learn from Australia’s pension savers? 

And finally

Oslo’s burgeoning art scene has been growing in stature internationally. Among the draws are the two-year-old Munch Museum on the waterfront, which displays the world’s largest collection of art by Edvard Munch; the state-owned National Museum of Art in Norway, which opened last year; and the Astrup Fearnley Museum, one of Scandinavia’s most notable museums for contemporary art, which is currently showing a milestone exhibition celebrating its 30 years. Until December 3, https://www.afmuseet.no