In Spite Of Losing Money, Hedge Fund Millennium Will Charge Fees

Izzy Englander's Millennium Management has changed its terms to guarantee that clients will always pay a minimum fee, regardless of the hedge fund's performance.

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Those who hold assets with the brokerage will now have to pay annual fees of about 1% of assets or 20% of investment gains - whichever is higher, according to a letter seen by Trade Algo. Millennium said in the Feb. 21 letter that it was trying to reflect industry-standard approaches that other multi-strategy companies use.  

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With this new change, the firm will still be guaranteed fees equal to about 1% of the client's assets, amounts to hundreds of millions in fees, even if the firm loses money or generates an annual return of less than 5%. Since its founding in 1990, Millennium has only had two years where it has returned less than 5% on a per share basis: 2008 and 2016. 

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The company, like most of its competitors, also passes along to its clients the costs associated with compensation for portfolio managers and legal and accounting expenses.

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There was no comment from a spokesman for the New York-based firm, which had $58 billion of assets under management at the end of February.

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This new agreement aligns with Millennium's broader strategy to create a stable business that does not suffer from frequent redemptions or big reductions in annual incomes as a result of frequent redemptions. Recent work by the firm resulted in the extension of the redemption period from one year to five years, allowing the firm to lock in client capital for a longer period of time. In order for the company's executives to attract and retain talent, as well as invest in technology and infrastructure, reliable capital is considered to be a key tool in attracting and retaining talent.  

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Regardless of whether Millennium charges 1% of assets in the coming year, the fund will have to recover at least a portion of what clients paid before it is able to charge a performance fee to clients the following year, according to the letter. Fees will be changed on or around July 1st, depending on when they take effect. 

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The company also removed a provision known as the key man clause that allowed some investors to redeem their shares in the event Englander, 74, left the company or was no longer able to manage it.