From an army of traders in Long Island to quants around the world: What's coming next for hedge fund powerhouse Schonfeld Strategic Advisors

Steven Schonfeld, Ryan Tolkin, Andrew Fishman

  • Billionaire Steven Schonfeld’s hedge fund was quick to adopt
    algo-trading strategies and now has 75 portfolio managers across
    the world. 
  • Schonfeld Strategic Advisors has been open to outside capital
    for just over three years and has bold aspirations — its chief
    investment officer says the goal is to be the premier equities
    hedge fund in the world.
  • The firm keeps to its roots, though, with 50 old-school traders
    still working in Long Island, roughly half of whom have been with
    the firm for more than 15 years. 
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Schonfeld Strategic Advisors — the hedge fund that grew out of
the fortune of billionaire trader Steven Schonfeld — has
seemingly bold aspirations given it has been open to outside
investors for just three years.

“Our goal is to be the premier equities hedge fund globally,”
said Ryan Tolkin, Schonfeld’s chief investment officer, in an
interview with Business Insider at the firm’s midtown Manhattan
office. 

A lofty target, but the firm’s ambitions might not be as much of
a reach as they sound —  it has been steadily adding strategies
over the years, enjoys stable financial backing from its founder,
and has demonstrated an ability to navigate change in the
past. 

Schonfeld, known in the 1980s for using legions of Long
Island-based traders to essentially do quant trading by hand, now
has 75 hedge fund portfolio managers across the world that employ
event-driven equity, quant, and discretionary long-short
strategies, with $2.6 billion in outside assets. 

See more:
Billionaire Steven Schonfeld poaches a top quant from Glenn Dubin’s
Engineers Gate to run a new fund

And the firm once said to be a part of “Wall Street’s
B-list
” by a Wall Street Journal article in 2009 is
outperforming many of its better-known peers in Chicago, Greenwich,
and Stamford, posting 16% return last year when many funds lost
money. With solid performance and consistent backing from its
namesake, Schonfeld might be one of the most stable hedge funds in
the game right now. 

This year, sources say, the firm’s flagship is up nearly 10%
through July, besting the average hedge fund. The firm declined to
comment about its performance. 

The right moves at the right time

Schonfeld started trading more than 30 years ago, and he
personally got rich with short-term trades that he’d often get out
of in a day or so. He built his own wealth to the point where he
was able to hire as many as 1,100 traders at Schonfeld Group’s
then-headquarters in Long Island to work the same kind of
strategy. 

That labor-intensive approach made him a billionaire,
but Schonfeld was also quick to adapt to the sea change that many
stock-picking hedge fund managers are still struggling with: the
move to quantitative, computer-driven strategies. Andrew Fishman,
the firm’s president since 2000, called Schonfeld “one of the great
natural statisticians,” and said that helped him be more flexible
with his approach. 

“Math has always been one of the elements that has defined us,
and Steve kept up with what was the lastest and greatest coming
down the pipe,” Fishman said. 

See more:
Humans are beating machines, and Pershing Square and Greenlight are
crushing it. Here’s how hedge funds performed in the first
half.

The result was a statistical arbitrage fund launch in 2007,
which is now the biggest product at the firm and has 22 portfolio
manager teams in the US, Europe, and Asia. While the firm had made
its name by executing trades relatively quickly, stat arb funds
took Schonfeld and others’ human-run strategies and super-charged
them, with positions sometimes bought into and sold out of in the
matter of seconds. 

The financial crisis helped the firm grow its nascent strategy
quicker than expected as Wall Street and other hedge funds hit hard
pushed talented people to the street, Fishman said. Regulations on
banks’ ability to trade on their own accounts created a surplus of
investors in the job market. 

“In some ways, we were able to get a jump-start on the talent
scene,” he said.  

The stat arb fund now makes up between 50% to 60% of the risk
the firm takes. A discretionary stock-picking fund, which was
launched in 2012 and has 37 portfolio managers, assumes 25% to 35%
of the firm’s risk. An event-driven equity strategy assumes the
rest of the firm’s risk, except for roughly 3% still being run by a
group of 50 traders in Long Island. 

The goal of the collection of strategies is to cover every part
of the stock on every time horizon, Tolkin said. 

“Try to make as many different bets across stocks as possible,”
he said. “You make an overall portfolio that combines different
market environments.”

This build-up led to the opening of the multi-strategy hedge
fund to outside investors under the name Schonfeld Strategic
Advisors right as investors were moving away from single-manager,
single-strategy funds. Schonfeld himself had stepped away from
running the day-to-day operations of the firm before the funds
opened to outside investors. 

Fishman said the firm benefitted from the movement away of large
institutions away from fund-of-funds and into managers that blend
several different strategies. 

A patient short-term trader

The reality is that while the timing of many of Schonfeld’s
moves might have been right, the firm still needed to add quality
people to execute the vision. 

The firm “became a place people want to come,” said Tolkin,
because of several factors. The first is the stability offered by
the capital invested in the funds and business by Steven Schonfeld.
But another big one is the “patient approach that has always been a
part of our DNA” when dealing with investment staff, Fishman
said. 

“It’s one of the things that has really separated us then and
now,” Fishman said. 

The reality, Tolkin said, is that not every portfolio manager is
going to crank out returns all the time. But the firm believes in
catering to its portfolio managers’ needs — whether it’s for
data, technology, additional analysts, or more — is a better
approach than firing. 

“Some of our most successful PMs would have been fired by our
competitors because they initially struggled,” Tolkin
said. 

See more:
Former Bain & Co. and Sagard Capital partners are launching a
small-cap-focused hedge fund

The patience can be seen with the remaining traders still
working on Long Island, roughly half of whom have been with the
firm for more than 15 years and are now personally invested in the
hedge fund, Fishman said. 

“It’s a differentiator, this history and this culture,” Fishman
said. 

Last year, the firm hired 38 investment professionals, and has
added some big names this year, including two
former BlueCrest Capital PMs,

Alex Codrington and Russell Hartley
, and one of Glenn Dubin’s
top quants
Ricky Shi
. Codrington and Hartley started up the London office,
and the firm’s plans to expand internationally include the decision
to
merge with Folger Hil
l, retaining a majority of the manager’s
investment teams in Europe and Asia. 

The firm’s success in building a business has also attracted
competitors to come after some the architects of the young hedge
fund. Schonfeld sued Michael Gelband’s ExodusPoint last year for
poaching Alessandra Sassun, head of human capital, Valmiki Prasad,
head of execution research, and Gregoire Vidal, head of business
development for quantitative strategies. ExodusPoint countersued
Schonfeld, saying the hedge fund “systematically under-compensated
employees,” and in April, a judge denied an injunction request from
Schonfeld that would have stopped Sassun and Prasad from contacting
people they worked with at Schonfeld.

Schonfeld and ExodusPoint declined to comment on the
lawsuit. 

A focus abroad

The next step in the firm’s ambitions for global domination is
its expansion into overseas markets, where it hopes 30% to 35% of
its risk will be soon.

The belief is that there’s alpha to be mined from international
markets, especially compared to the US, said Tolkin. But the firm
does not want to grow for growth’s sake alone, Fishman said.

“I don’t think you have to continue to scale to get the
advantages of scale, at a certain point there is diminishing
returns,” he said. 

“We’re not going to hire a US consumer group that’s doing the
same thing our current US consumer group is doing just for the sake
of growing.”

See more:
The hedge fund industry has a problem with managers cherry-picking
performance. 1 group wants to stop that.

The expansion will be into areas and equities the firm doesn’t
have exposure to right now, but without a huge rush to get there.
Fishman knows the manager has a good base to work off, with decades
of proprietary trading data, technology infrastructure, and
Schonfeld’s capital and reputation, as well as the current “luxury
of good performance” that makes it easier to be selective with
expansion plans and additional investors. 

“We want people that understand our business, ” he said of
potential investors.

“You can be consistent with your objectives.” 


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From an army of traders in Long Island to quants around the world: What's coming next for hedge fund powerhouse Schonfeld Strategic Advisors