The giant hedge fund that hates risk and still wins

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Subscribe to enjoy similar stories. The investment pros at one of the world’s largest hedge funds, Millennium Management, have a strict rule: Don’t lose money. Millennium parcels out the roughly $69 billion it manages for clients across more than 2,600 traders, analysts and other investment staffers working on hundreds of teams.

Each team operates independently, betting on things like bonds converging or which companies get added to stock-market indexes or the outlook for commodity prices. But all of them face unusually tight limits on risk-taking, according to people familiar with the firm’s inner workings. For example, portfolio managers who are allocated $1 billion can lose only $50 million before that buying power will likely be cut in half.

If they lose an additional $25 million, they will likely be fired. Protecting itself against even modest losses has made Millennium one of the most stable performers in the hedge-fund industry and made Israel “Izzy" Englander, the firm’s chief executive, a billionaire. Millennium has generated $56 billion in gains for investors after fees since the firm’s inception in 1989, according to LCH Investments.

Among hedge funds, that trails only Citadel. Millennium has had a single down year, 2008. Over the past five years, it hasn’t lost more than 1% in any given month.

That kind of longevity and consistency is rare in the hedge-fund world. Many of the most successful traders historically were defined by their risk appetites and track records that featured home-run returns alongside strikeouts. Nowadays, among investors such as pension plans and charitable foundations, go-for-broke hedge funds are out of fashion while those that reliably generate decent gains are in demand.