Israel Englander isn't used to getting blindsided.
But on the morning of Jan. 3, Mr. Englander, the billionaire founder of Millennium Management, was caught off guard in his eighth floor offices on Fifth Avenue when his top lieutenant and potential successor abruptly resigned.
The reason was as old as they come in the hedge fund game. After eight years, Michael Gelband, a hot shot in fixed income, wanted to be more than an employee at Mr. Englander's wildly successful hedge fund. He wanted a stake.
Mr. Englander, 68, known as Izzy, now finds himself where he's spent much of his career: alone at the top. His $34.4 billion empire, built out of scores of separate trading teams, remains solely in his control and without an anointed successor.
The question for Englander's 2,100 employees and his deep-pocketed investors is whether Millennium can move out of its founder's shadow. Mr. Gelband's looming departure has set the industry abuzz. Outsiders, and many insiders, are asking what exactly is going on at Millennium.
The answer, according to people close to the firm, is that Mr. Englander didn't share ownership. A Brooklyn native with a no-nonsense demeanor, Mr. Englander is famous for his eat-what-you-kill ethos. Make money, and you get rich. Lose money, and you're out — fast. He's placed his traders in about 175 silos, each with a different market strategy. Few of them get to see the big picture, a setup that makes managing Millennium a challenge but also keeps the teams focused.
Mr. Gelband, who plans to leave in the second quarter, didn't respond to messages seeking comment. A spokesman for New York-based Millennium declined to comment.
Mr. Gelband, 57, is departing after a tough year for the hedge fund. The firm's main fund last year posted the worst performance since 2008. While it was up 3.3%, that's a far cry from the double-digit returns generated in the previous three years.
Millennium has only had one losing year since its founding — a 3% drop in 2008 — and has returned an annualized 14% compared with about 10% for the average hedge fund. It's also bucked the industry trend: As investors have pulled money from managers amid lackluster performance and demanded lower fees, Millennium has attracted billions of dollars and remained one of the most expensive hedge funds.
Immediately after breaking the news to Mr. Englander, Mr. Gelband sent an e-mail just before 11 a.m. to his teams, telling them he planned to leave, according to the people, who asked not to be named discussing internal matters. The move had Millennium scrambling to notify investors and employees.
Mr. Gelband said in the e-mail that he transformed the fixed-income group from a money-losing operation to one that generated $7 billion in trading revenue during his tenure. (It's unclear how he arrived at that figure and it doesn't include costs such as compensation.)
Mr. Englander hired Mr. Gelband after the 2008 implosion of Lehman Brothers Holdings Inc., where he was global chief of fixed income and had warned executives of the firm's subprime exposure two years before the bank's collapse. Mr. Englander gave Mr. Gelband one task: turn Millennium's fledgling fixed-income unit into a powerhouse.
By the end of last year, Mr. Gelband had expanded the number of teams trading in markets such as interest rates and credit to 45.
Mr. Englander, who worked as a floor broker on the American Stock Exchange, started Millennium in 1989, and its teams make measured wagers on everything from oil prices to company bankruptcies. Assets have surged almost fivefold from $6.9 billion in mid-2010. And while hedge funds typically charge an annual management fee of 2%, Mr. Englander passes on all business costs to investors. That has averaged 5% to 6% annually over the past 15 years, or about $1.7 billion last year.
That lucrative business model has made Mr. Englander rich, with an estimated net worth of $3.7 billion, according to the Bloomberg Billionaires Index. In 2014, he paid a then-record $71.3 million for a Park Avenue apartment that was the residence of the French ambassador to the United Nations.
Mr. Englander has sought to fortify Millennium's capital and management. Starting in about 2009, he began holding talks with sovereign wealth funds and other investors about selling a stake to secure permanent capital and avoid a repeat of the fallout from the global financial crisis, when clients pulled about half of the hedge fund's assets.
Mr. Englander is now exploring other options including listing a fund, said the people.
Mr. Englander, who has said he expects to be in the business at least until he's 80 years old, hasn't appointed a successor. As part of that planning, he has implored his deputies to take on more responsibility. And as the number of Millennium's trading teams grew, Mr. Englander told senior managers he needed someone to help him run the firm.
The founder told investors and employees about four years ago that Mr. Gelband was the most likely lieutenant to run Millennium in his absence. Mr. Englander viewed him as someone who could evolve from running just one unit and, at one point, asked him to head a new commodities group, the people said.
That never happened. In about 2015, Mr. Englander's view of Mr. Gelband changed, said a person familiar with Mr. Englander's thinking. The founder concluded that Mr. Gelband was too focused on his fixed-income group — often at the expense of decisions that would benefit Millennium as a whole — and didn't meet his expectations to grow into a leader with a firm-wide perspective, that person said.
Those who know Mr. Gelband have a different view. The executive, whose business accounted for about a fifth of the firm's capital, did have broader ambitions and was involved in decisions beyond his unit, they said. He helped hire chiefs for Millennium's equities and Asia businesses as well as its global risk operations. Mr. Gelband also pitched company ideas to Mr. Englander. But with greater responsibilities, the bond chief wanted equity in the business, they said.
Instead Mr. Englander looked outside the firm for lieutenants. In 2015, he hired John Anderson, 52, from J.P. Morgan Chase & Co. as head of commodities. And in July he brought on Bob Jain, 45, who ran Credit Suisse Asset Management, to be his co-chief investment officer.
Amidst these hires, Mr. Englander formed a trustee group that would nominate someone to run the business in his absence.
Jain's hiring created the perception on Wall Street that Mr. Gelband had been passed over even though the picture to insiders — and those close to the firm — was different. Mr. Gelband and other deputies continued to directly report to the founder. Jain works solely with Mr. Englander, who stepped away from directly trading in the 1990s, managing capital allocations, risk and helping with firm strategy.
Ultimately, a frustrated Mr. Gelband decided to move on. He wants to run his own show and may start a hedge fund with Hyung Soon Lee, 48, Millennium's former equity chief who was let go in October amid a management restructuring of his group, according to people who know them. Mr. Lee declined to comment on his plans.
For Mr. Englander, he's left with the task of filling central roles of deputies that had together managed almost three quarters of Millennium's capital. And he still has to decide on a successor. The question investors have is: Can he?