In a move emblematic of a growing trend in the hedge fund industry, Millennium Management LLC, one of the world’s largest and most successful multi-strategy hedge fund firms, has entered into an agreement to allocate substantial capital to Hong Kong-based Centerline Investment Management Ltd. The deal, reported by sources familiar with the arrangement, marks the latest example of global hedge funds turning to external managers to bolster returns and manage expanding asset bases.
Under the terms of the agreement, Centerline will manage hundreds of millions of dollars for a separate managed account owned by Millennium. Neither firm has commented publicly on the deal, but it underscores Millennium’s continued efforts to diversify its investment strategies and maintain its competitive edge in an increasingly saturated and complex hedge fund landscape.
Millennium’s Expansion and Industry Context
Millennium Management, led by billionaire Izzy Englander, is a giant in the hedge fund world, managing nearly $70 billion in assets. It is the largest of more than 50 hedge funds globally that operate under a multi-strategy model, employing various teams and approaches to create a diversified portfolio aimed at producing stable, consistent returns. This group of hedge funds, also known as multi-manager or multi-strategy funds, has seen explosive growth in recent years. According to a report by Goldman Sachs Group Inc., the sector’s assets have grown by more than $230 billion since 2017, nearly tripling in size, while the broader hedge fund industry has stagnated.
Millennium’s rapid growth reflects a broader industry trend where leading hedge funds have aggressively expanded their assets under management (AUM) to capture more market share. However, this has come with challenges, notably a highly competitive market for talent and mounting pressure to deliver strong returns in exchange for the hefty fees they charge investors. The past year saw some underperformance within the multi-strategy group, leading to the first decline in collective assets in at least seven years.
In this environment, multi-strategy firms like Millennium, Balyasny Asset Management LP, Verition Fund Management LLC, Point72 Asset Management LP, and Schonfeld Strategic Advisors LLC are increasingly turning to external managers to augment their internal investment teams. These partnerships often involve deals with former employees or startups managing money exclusively for the larger hedge funds. For fledgling hedge funds, these partnerships provide essential capital to grow their businesses and enhance credibility in the marketplace.
Centerline Investment Management: An Emerging Player
Centerline Investment Management, founded by Ben Xu in 2018, is relatively young but has already made a mark in the Greater China market-neutral equity strategy space. This investment approach aims to mitigate risk by balancing long and short positions, meaning it seeks to profit from both rising and falling stock prices. The firm uses alternative data and industry-level analysis to identify opportunities, drawing on deep insights into company fundamentals.
Xu, who previously worked for well-known regional and global hedge fund firms like Mount Kellett Capital Management, PAG, and Balyasny Asset Management, has built Centerline into a firm managing about $200 million in assets before the Millennium deal. Despite facing challenges — including a near-10% decline in 2022 amid China’s pandemic-driven market volatility and regulatory uncertainty — Centerline has posted solid returns. From its inception to September 2023, the firm generated an annualized return of 7.5%, outperforming the MSCI China Index, which posted a 2% loss over the same period.
Centerline’s resilience in the face of challenging market conditions — particularly in China, where the economy has been buffeted by geopolitical tensions, regulatory changes, and sluggish growth — makes it an attractive partner for Millennium. The China market, the world’s second-largest economy and one of the most liquid stock markets in Asia, remains a significant draw for global investors. However, many hedge funds focused on the region have struggled, especially as the MSCI China Index remains around 50% lower than its February 2021 peak.
The Growing Popularity of External Manager Partnerships
Millennium’s decision to allocate capital to Centerline is part of a broader trend among large hedge fund firms to partner with smaller, specialized managers. By leveraging the expertise of external managers, these hedge funds can expand their strategies, mitigate risks, and enhance returns, while also giving smaller firms the capital and resources they need to scale up.
The practice of outsourcing certain investments to external managers is still relatively rare in Asia compared to the US and Europe. However, it provides a crucial source of capital for smaller or newer hedge funds looking to build a track record and grow their assets. This is particularly important for firms focused on China, where regulatory hurdles, market volatility, and geopolitical concerns have made it challenging for many hedge funds to raise capital.
Other examples of similar partnerships include Singapore-based Keystone Investors Pte, a spinoff of Schonfeld Strategic Advisors. Keystone, which was established in 2022, managed to grow its assets to $2.6 billion by July of this year, thanks in part to backing from global multi-strategy firms. Similarly, Blue Swell Asset Management, another Singapore-based firm specializing in Japanese markets, was spun off from Point72 Asset Management.
These partnerships are a win-win for both sides. For large multi-strategy firms like Millennium, backing external managers helps them diversify their investments and tap into new expertise without having to build out internal teams from scratch. For smaller hedge funds, such partnerships provide the financial backing and credibility needed to attract more investors and scale their operations.
Challenges Facing the Hedge Fund Industry
While the multi-strategy hedge fund model has proven successful in recent years, it is not without its challenges. One of the biggest hurdles is the fierce competition for top investment talent. As more hedge funds expand their asset bases, the demand for experienced portfolio managers and analysts has skyrocketed, leading to a war for talent that has driven up compensation costs.
Another challenge is the increasing scrutiny from investors, who are demanding more transparency and better performance in exchange for the high fees charged by hedge funds. The traditional “2 and 20” fee model — where investors pay a 2% management fee and 20% of profits — has come under pressure as investors push for lower fees and more favorable terms.
Last year’s disappointing returns for some multi-strategy firms also highlighted the risks of managing such large pools of capital. As assets grow, it can become more difficult to generate the same level of returns that smaller, more nimble funds can achieve. This has led to concerns that some of the largest hedge funds may struggle to justify their high fees if they cannot consistently deliver strong performance.
The Millennium-Centerline partnership is likely a sign of things to come as more large hedge funds look to external managers to supplement their own investment strategies. With the global hedge fund industry facing increasing pressure to deliver returns in a challenging market environment, partnerships like this one offer a way for firms to enhance their performance while also supporting the growth of smaller, specialized managers.
For Centerline, the partnership with Millennium represents a major opportunity to expand its business and build its reputation in the global hedge fund community. By managing a significant portion of Millennium’s capital, Centerline will not only increase its assets under management but also gain valuable experience working with one of the most successful hedge funds in the world.
As the hedge fund industry continues to evolve, we can expect to see more deals like this one, particularly in regions like Asia, where the hedge fund landscape is still developing. For firms focused on markets like China, which remain volatile but full of opportunity, partnerships with global hedge fund giants could be the key to unlocking long-term success.
These collaborations will play an increasingly important role in shaping the future of the hedge fund industry, as both large and small firms navigate the challenges and opportunities of a rapidly changing global economy.
