When it was raising fresh money from investors in 2020, one slide on the pitch deck for the hedge fund Schonfeld Strategic Advisors got to the heart of the issue: “Why Schonfeld?”
“Talent is our strategy.”
That tagline has long been the rallying cry at Schonfeld. Even as the firm blossomed from a low-key family-investment office to a hedge-fund giant with nearly $15 billion in assets and a headcount of over 950, it has leaned into the collegial DNA that separates it from hard-nosed, unsentimental rivals such as Millennium and Citadel.
Israel Englander, the CEO and chair of Millennium, has been known to quickly cut bait with underperforming portfolio managers, and one person who sourced talent for the billionaire investor recalled him saying he didn’t want to keep “losers.” Englander’s representative didn’t respond to Insider’s requests for comment.
Schonfeld, on the other hand, has always embraced patience. Portfolio managers aren’t going to spit out returns like a Ford plant does cars, its execs reasoned, and catering to their needs and helping them through rough patches would provide better long-term outcomes.
“Some of our most successful PMs would have been fired by our competitors because they initially struggled,” Ryan Tolkin, the CEO of Schonfeld, told Insider in 2019.
But Schonfeld’s guiding mantra may be put to the test as the fund reckons with an extended drought of returns on the back of a massive expansion of its operations. The slump may represent the biggest challenge yet for Schonfeld’s 37-year-old CEO, an ambitious ex-credit trader whose relationship with his billionaire boss and benefactor, Steve Schonfeld, runs deeper than the firm has publicly acknowledged.
The firm hasn’t made money in either of the two funds that manage Schonfeld’s roughly $13 billion in assets just over halfway through 2023. And in 2022, a strong year for multi-strategy funds overall, it lagged well behind its closest peers.
It’s been eerily quiet over there for the past month and and half to two months.A hedge fund recruiter
Amid the weakness, the fund has begun to prune costs. Earlier this year, the firm significantly slowed hiring and cut spending in its technology department, according to a person familiar with the matter, including by curtailing expenses related to travel, events, and team gatherings. The company, which has built offices in Miami and Stamford, Connecticut, and added space in Manhattan, has taken a more stringent stance on employees returning to the office, closely monitoring their in-person attendance through data analysis of swipe-in records. The fund also reduced its global consultant workforce, the person said.
Schonfeld has also lost senior talent in areas that were only recently targeted for growth, such as recruiting and technology. Several technology leaders departed in recent months, Insider previously reported, as have the recruiting heads for infrastructure and enterprise technology. More recently, Quita Ramirez, the head of capital development and investor relations, departed the firm and is expected to join the macro fund Rokos Capital, according to people familiar with the matter. Trina Geatz, the deputy COO, is also leaving, the people familiar with the matter said.
The firm’s talent-acquisition group, which recruits non-investment roles, has shrunk significantly since the start of the year, according to people familiar with the matter. Eight people are gone, some of them cut and some of them deciding to leave — an indication that the growth spurt that saw the company’s headcount grow from some 600 employees to more than 950 over the past two years may be abating.
The firm was still adding portfolio managers earlier this year in its macro division and in Delta One trading, among other areas. And while it continues to pursue investment talent, the hiring pace has slowed, recruiters who’ve worked with the firm told Insider.
“It’s been eerily quiet over there for the past month and a half to two months,” one said.
A Schonfeld spokesperson declined to comment for this story.
A family affair
While in college at Duke, Tolkin told fraternity brothers that he would be running a hedge fund in his early 30s. He was being conservative.
After a handful of years at Goldman Sachs out of college, in 2013, Tolkin took over as CIO of Schonfeld’s family office before his 27th birthday. He was employee No. 37, working alongside firm’s president, Andrew Fishman, as Schonfeld, a former stockbroker who made his fortune in day trading, began to step back.
Tolkin’s ambitions were expansive, and he began laying the groundwork for a world-class investment fund. Sources close to the firm recalled Tolkin in meetings pitching a vision of Schonfeld as the next Millennium, Englander’s now-$57-billion industry behemoth.
How did a 27-year-old convince a billionaire to entrust him with his empire? Tolkin was a precocious, math-loving kid who zeroed in on finance early in life. He enjoyed the stock-picking game that the Long Island newspaper Newsday put on, and he did a work-study internship at Schonfeld Securities in high school, trading money as a teenager. He was also a high achiever at Duke and spent five years in credit trading at Goldman Sachs — a strong résumé, though not an outlier in the world of finance.
It also helps when the guy running the firm is a lifelong family friend and mentor.
Steven Schonfeld’s relationship with the Tolkin family predates Ryan Tolkin’s birth. Schonfeld attended Roslyn High School in Long Island with several members of the Tolkin clan, including Ryan’s father, Brad Tolkin, who became one of his closest friends. Brad Tolkin graduated in 1976 and Schonfeld graduated a year later, and they had shared interests in card playing and sports, according to their senior yearbook bios. Schonfeld parlayed his love of gambling and shrewd math skills into a trading fortune on Wall Street, while Brad carried on the family travel-agency business, which sold to American Express in 1998, before starting a new travel business with his brother, Jeff, in 2005.
Steve and Brad remained close friends. Brad Tolkin is named as a trustee for a trust in the name of one of Schonfeld’s three daughters, according to a securities filing. A Facebook photo from 2015 shows Schonfeld with Brad Tolkin and his children at a Cleveland Cavaliers game, with the caption: “Great sons (CJ, Sean, Ryan) and Great friends (Schoney)”.
Of Brad Tolkin’s three sons, Steven Schonfeld has had especially close ties with Ryan — a relationship that accelerated with Ryan’s growing inclination toward finance in high school. A handful of Schonfeld insiders, including a former senior employee and other hedge-fund professionals who’ve worked with the firm for years, told Insider that they understood Schonfeld to be Tolkin’s godfather, discussing the relationship in hushed tones and on the condition that nothing be attributed to them. Their belief was that the information was accurate — some had heard it directly from Schonfeld personnel at the time of Tolkin’s arrival at the firm — but not public.
The concept of godparents stems from Christian religious traditions around baptism and spiritual mentorship, and some sources pointed out that the Tolkins and Schonfelds are both Jewish. But nowadays, a more informal and secular interpretation of the term has evolved — a family member or close friend who’s designated to serve as a role model and an unofficial guardian of the child — and has been adopted more broadly, including by Jewish and nonreligious couples.
A Schonfeld spokesperson declined repeated requests to clarify Steve Schonfeld’s relationship with the Tolkin family and with his CEO. In numerous press releases and media appearances since Ryan’s arrival a decade ago, the firm has not discussed the extent of the Tolkin’s and Schonfeld’s relationship.
It’s worth noting that nepotism has long been rampant on Wall Street, and you don’t have to look far for modern examples: Michael Gelband, the founder of the multi-strategy investment-management firm ExodusPoint, installed his three sons in key roles at the firm; and Michael Englander, Izzy Englander’s son, spent many years at Millennium.
It’s also fair to point out that Schonfeld was a family office — not a hedge fund beholden to outside investors — when Tolkin came aboard.
Some found it amazing that Schonfeld would hand over the reins to someone so young, but “Steve is no dummy,” as one person who’s worked with the fund for years said, and Ryan proved to be up for the challenge.
“He came in and earned his stripes,” this person said.
“Obviously when you’re in your 20s you haven’t done everything. You can’t pretend to have 30 years of experience when you’re 25,” one former employee who worked with Tolkin said. “He was pretty open to ideas. I found him refreshing, thoughtful.”
Tolkin quickly built a strong track record. In his first full three years as CIO, 2014 through 2016, the firm gained an annual average of 31%, far outpacing the then-foundering hedge-fund industry, Bloomberg reported.
“Steven wants to make 20% a year, and do it at a 3 Sharpe,” Fishman told Bloomberg in 2017, referring to a performance measure that accounts for risk.
The firm officially opened to outside capital in 2016, specializing in equities strategies including statistical-arbitrage, fundamental stock-picking, and event-driven trading.
Tolkin told Insider in 2019 that the firm’s goal was no less than becoming “the premier equities hedge fund globally.” And for most of his history with the firm, the fund has performed well.
The flagship Strategic Partners Fund has a five-year annualized net return of 11.6% through 2022, compared with 9.4% in the S&P 500 and 3.4% for the Barclay Hedge Fund Index, according to BarclayHedge. The smaller Fundamental Equity fund had a net return of 9.6% over the last five years.
Bumps in the road
The last 18 months have been a different story for the firm, and now Tolkin is facing what is perhaps his greatest challenge yet.
Over the past two years, the firm’s growth exploded. Client assets, which stood at about $6 billion in early 2021, more than doubled, while headcount increased by more than 60%. The firm expanded its remit beyond equities to deploy its haul of investor cash, hiring Colin Lancaster later in 2021 to launch a new macro investing division, which it has spent heavily on building out.
Amid the growth, returns have sputtered. While Steven Schonfeld’s 20% annual-return goals would’ve been ambitious for any sizable hedge fund, returns have also lagged behind peers. Schonfeld’s flagship fund returned about 4.5% and its Fundamental Equity unit returned 3.2% in 2022 — better than the losses notched in the stock market, but trailing Citadel, Millennium, and Point72, each of which notched double-digit results.
In 2023, the firm has seemed to hit a wall, with both of its funds ending July flat for year-to-date performance.
Some of it can be chalked up to unfortunate timing. Macro trading, the emphasis of Schonfeld’s recent expansion, has been one of the worst-performing strategies across hedge funds this year.
Still, the diversification that has helped multi-strategy peers book gains this year hasn’t worked for Schonfeld. The stock market is having a stellar year — the S&P 500 is up by 17% and the Nasdaq Composite is up by 32%. Despite Schonfeld’s emphasis on stock-picking strategies, its Fundamental Equity business hasn’t made money.
The firm has also taken hits in tactical trading, including struggles in merger arbitrage, according to people familiar with the matter.
How much patience will Schonfeld be able to maintain facing these headwinds? Regardless of its family-office ethos, the firm’s investors, who are footing the bill for the hedge fund’s operational expenses — known as a “pass-through fee model” — will likely drive that question.
Client assets have begun to dip, falling from $14.3 billion under management in the first quarter, according to BarclayHedge, to about $13 billion in June.
Of course, Schonfeld is far from the first hedge fund to grow too much, too quickly following initial success — Balyasny Asset Management and Brevan Howard both hit stumbling blocks and needed to regroup before coming out stronger on the other side. ExodusPoint launched with a record $8.5 billion and grew that to $14 billion to contend with Millennium, but has likewise had performance struggles.
“They are exactly where every multi-strat that raised assets quickly has been,” a senior hedge-fund recruiter said of Schonfeld, adding that “their performance is a reflection of leadership, and changing leadership there is pretty difficult.”
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