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Since its inception in 1989, Millennium Management has reported a loss in only one year.
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The hedge fund, valued at $69 billion, employs a stringent trading methodology to ensure profitability.
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This approach has contributed to founder Israel Englander amassing a billionaire status.
The $69 billion Millennium Management hedge fund utilizes a straightforward yet potent trading strategy aimed at minimizing losses: selling off declining stock positions promptly.
Established in 1989, this firm is among the largest hedge funds globally, with only one year of losses—2008—when the financial crisis led to a significant recession and a 38% drop in the S&P 500.
Despite the downturn, Millennium outperformed the S&P 500 that year, with only a minor loss in the single digits.
Outside of that exceptional year, Millennium has reported annual profits throughout its 35-year tenure, achieving a remarkable $56 billion in cumulative gains for its investors.
For instance, when the S&P 500 dipped 10% in 2000 amidst the dot-com crash, Millennium had its best year on record, delivering an impressive 35% return for its clients, as per Bloomberg data. Similarly, in 2022, while the S&P 500 ended the year down 19%, Millennium managed a 12% increase.
The fund’s success can be attributed to its multi-strategy investment approach.
This strategy allows its 2,600 traders, investment analysts, and portfolio managers to independently operate in various groups, deploying a range of investment methods across stocks, bonds, options, and commodities.
A report from The Wall Street Journal explains the straightforward goal: generate profits to retain employment, or face the likelihood of termination for losses.
Reportedly, if a Millennium portfolio manager handling $1 billion incurs a $50 million loss (5%), their capital allocation is reduced by half, to $500 million.
Should the same manager then face an additional $25 million decline, resulting in a 7.5% drop from the original $1 billion, termination follows, though some exceptions exist, highlighted the report.
This rigorous stop-loss trading methodology leads to a significant employee turnover, with approximately 15%-20% of the staff changing annually.
However, this trading strategy has also contributed to Israel Englander becoming a billionaire.
Based on Bloomberg’s data, Englander’s net worth stands at $13.3 billion, making him the 172nd wealthiest individual internationally.
Furthermore, the strategy continues to prove effective, with Millennium posting returns around 10% in 2023, and achieving an additional 9.5% year-to-date.
Millennium Management chose not to provide a comment.
Read the original article on Business Insider