Is Millennium worth $14bn?

How to value a hedge fund management company

The FT reported this week a valuation of $14 billion for Millennium as it looks to sell a 10-15% equity stake. Is Izzy Englander calling the top - who knows better when to book profits than a pod shop trading legend?

In mid-2023 Ken Griffin said, “The stories of markets are always stories of cycles and strategies that come and go in terms of popularity….Clearly right now the multi-strategy managers are very much in vogue. When you’re most popular is probably when you’re reaching the top of the cycle.” But multi-strategy hedge funds kept winning over and over and over again. Better investment performance, strong flows, locked-in capital, new fees, and higher pass-through expenses for the pod shops.

The Millennium stake sale is likely more about succession planning and creating a sensible valuation from which to price share options for his senior management than Englander calling the top. Institutional Investor Magazine estimated that Englander made $4bn last year and he is worth more than $15bn so the proceeds of the stake sale are not material in that context.

But what’s a pod shop worth?

There is only so much alpha out there. Hedge funds like Millennium have capacity constraints, a far cry from the asset-gathering machines like Blackstone, KKR, and Apollo.

Then there is the elephant in the room: massive pass-through costs. Investment banks are usually great businesses for their employees but not their shareholders. Maybe Apollo is like a universal bank with its full suite of asset-gathering products and insurance funding instead of deposit funding, while Millennium is like an investment bank.

Not all investment banks are the same though. Credit Suisse lost money and paid $35bn in bonuses in the decade before it went bust, but Goldman Sachs managed to pay even higher bonuses and make tens of billions of dollars in net income for their shareholders over the same years. Is Millennium less like Credit Suisse and more like Goldman Sachs?

Peer group multiples

The Millennium stake sale got me thinking about my days valuing hedge funds. It’s more than 20 years since I started writing sell-side research reports on a company called Man Group, a hedge fund that was in the FTSE100 index and at its peak made several billion dollars of profit a year. Before the Global Financial Crisis, I worked on a ton of IPOs of hedge funds. Because of the unpredictability of performance fees, I always valued them on a lower price-to-earnings (PE) multiple of 6x and management fee earnings on a higher 12-15x PE.

The top in the valuation of hedge funds was the Och-Ziff IPO in 2007. The last decade has not been kind to the legacy of the firm, but in 2007 they were one of the premier multi-strategy hedge funds. Many similarities to the pod shops in terms of low double-digit annualized returns with very few drawdowns and low volatility. Och-Ziff was less well-diversified than Millennium but much less leveraged. This was partly a function of its business model, which was equity long/short but with a long bias. Nevertheless, Och-Ziff had grown AUM from $7bn to $30bn in the 5 years before its IPO. Och-Ziff’s valuation at IPO was 13x earnings and 40% of AUM. That compared to 25% of AUM for Blackstone at the time. Och-Ziff’s PE didn’t give justice to how rich the valuation was as the top investors within the firm were largely paid through distributions and hence the earnings were not fully loaded for all employee costs.

The largest buyer of minority stakes in hedge funds in recent years has been AMG Managers. In June 2016 it spent $800m acquiring minority stakes in 5 hedge funds with a combined AUM of $55bn. The largest was Winton with an AUM of $35bn, followed by Capula with an AUM of $10bn. The percentages acquired were not disclosed but even assuming a low minority stake of 10% this would imply a maximum valuation of 15% of AUM below the 18.5% implied by the valuation for Millennium. More recent minority stake purchases by AMG Managers include a second tranche of Systematica in 2022 and pod shop Verition in April 2025. The Japanese insurer Dai-ichi Life acquired 15% of Capula in two tranches but again terms were not disclosed.

KKR has acquired a 40% stake in leading UK equity long/short multi-strategy hedge fund Marshall Wace in a series of transactions from 2015. Bloomberg reported that one tranche of this deal was $120m for 5% of Marshall Wace in 2009. The implied $2.4bn divided by the AUM at the time of $39bn gives a relatively low valuation of 6% of AUM. Marshall Wace doesn’t have the benefit of pass-throughs so a significant portion of their management and performance fees cover the costs that Millennium passes through to its clients.

The additional complexity is that many hedge funds now have low-margin long-only money and without knowing the exact breakdown it is hard to know the net income.

Another relevant comparable is Citadel Securities. Venture capital firms Sequoia and Paradigm spent $1.15bn to acquire 5% of the firm at a valuation of $22bn in 2022. This implied a relatively low multiple of 7.5-8x PE. Although it is a market maker reliant on market conditions, the business has a huge moat, and hedge fund performance fees are also a volatile earnings stream.

In terms of publicly listed peers Man Group trades on 10x net income and 11.5x excluding performance fees but the asset-gathering private markets giants trade between 20-30x PE reflecting their superior growth and locked-in assets. The premier play in the sector Blackstone, which doesn’t have the balance sheet intensity of Apollo and KKR trades above that range reflecting strong capital-light growth.

What are we buying and what is the implied multiple?

Looking at Millennium’s AUM of $75bn and the valuation of $14bn would imply a price of 18.7% of AUM, which would put it at the top end of peer group multiples.

The vast bulk of Millennium’s costs including not just portfolio managers and analysts but support costs, market data, offices, and a wide variety of other items are passed through into fund performance. Bloomberg looked into regulatory filings for the pod shops over the last decade and found that this pass-through was around 5-10% of AUM each year, with the best-performing managers with longevity and brand at the top end of this range. A simple 10% of Millennium’s $75bn would be a huge $7.5bn cost base.

Millennium has recently started charging a management fee of 1% of the $75bn AUM albeit only when performance fees are not earned. Assuming a 20% normalized tax rate equates to $600m of post-tax management fee. The annualized net returns of Millennium before performance fees were mid-teens in recent years. Taking a performance fee of 20% of these returns and conservatively taxing this at 20% would give around $1.7bn of net income from performance fees. Investment performance could be lower going forward and there may be some trapped costs they can’t pass through to investors but there are likely tax structures and offshore entities in place to minimize tax.

Taking the $14bn and dividing it by the total $1.7bn net income would give a PE of 8x, which is the bottom end of where an investment bank like Goldman Sachs may trade and there is an argument that Millennium looks more like a Goldman than a Blackstone.

Given the lack of publicly available data, this is a back-of-the-envelope analysis rather than a scientific valuation. The billion-dollar question is what changes Millennium is making to the fee structure as part of this process. Will they be charging both the management fee and the performance fee to create a distinct earning stream? Will they hike the management fee further, after all, it is a rounding error relative to the level of pass-throughs.

What factors could make Millennium worth more or less than $14bn?

The key to the long-term value of Millennium is of course asset growth, the stickiness of AUM, the durability of performance fees, and business model risks.

Let’s start with AUM growth. Despite returning a significant amount of money to clients, Millennium has seen steady AUM growth of 10% per annum over the last 5 and 10 years. It is only if adding in the post-GFC years from 2011 that compound AUM growth rates rise to 14%. This is well below the growth rates of listed private market giants. For instance, AUM growth rates at Blackstone are in the mid-teens percentage rates in recent years and high teens if we look back to the early part of the last decade.

The key challenge is alpha-generating opportunities. But Millennium is well diversified and has shown an appetite and ability to successfully play the fund of funds game. For instance, 10% of the 330 investment teams at Millennium are external managers. This includes 15 years of successfully allocating to top systematic hedge fund WorldQuant, which today manages $7bn for Millennium. They recently made a $3bn allocation to hedge fund Taula Capital and $2bn to a new private credit fund.

On the other side of this comparison, private market giants are not immune from limits to alpha generation. The lack of mark to markets allows for “volatility laundering” in private markets as AQR founder Cliff Asness likes to say. There are real concerns with the decline in private equity industry returns and the lack of realizations by sponsors. This is all before we have seen a recession. At the same time, there are serious digestion issues that major institutional investors are having with their illiquid private equity allocations.

Given the brand strength of Millennium, if they did want to be aggressive about taking in new money allocators would flock to their funds. The appetite is so great that if they wanted to tweak their business model such as using their brand in areas like private credit, they could easily double assets almost overnight.

Secondly, what about the stickiness of AUM? All the top hedge funds have been focused on duration and quality of capital given their experiences during the GFC. Here Millennium has been the most aggressive and successful of the pod shops. In the past, it would take one year (25% per quarter) for clients to redeem their cash from Millennium fully. Today it takes clients five years. This may not be the 10-year money of a private equity fund, but it is long-duration patient capital. An industry that once depended on fund of funds money gets most of its money from investors with deep pockets like pension funds and sovereign wealth funds. In addition, Millennium can now call up capital, in a similar way to a private equity manager.

Third, performance fees are inherently volatile but there is a fundamental difference between the performance fees at Man Group that were dependent on one highly volatile trend-following CTA and the highly diversified business model of Millennium. This is a firm that always prioritizes higher Sharpe ratios over returns and has a huge focus on risk management. Millennium was only down 3% in 2008 and has delivered consistent returns. Millennium has a much lower volatility in monthly returns than even other market-neutral pod shops like Citadel. In the last 5 years, Millennium has rarely had a month with more than a 1% drawdown. One exception was March 2025 but even then, it was a 1.2% negative month.

Finally, high levels of leverage are a risk in the Millennium business model and can impact its valuation just like balance sheet strength impacts the valuation of a bank. Millennium and other large funds are increasingly diversifying their funding sources. The 3 big US prime brokers remain core to funding. However, OFR data shows that the top 10 hedge funds (a list that Millennium will be on) had reduced the share of borrowing from their three largest creditors from 65% to 52% in the last 3 years. They have increased their average number of creditor relationships from 12 to 20 over the last decade. Millennium doesn’t disclose data publicly, but Citadel has more than 40 institutional counterparties and banks that finance their portfolio and Millennium will be set up in the same way. More than prime brokerage, the largest growth in borrowing has been repo financing for leveraged fixed-income trading and top hedge funds source a lot of this from commercial banks and indirectly from money market funds.