Ryan Tolkin, CEO and CIO of multistrategy hedge fund firm Schonfeld Strategic Advisors, said the firm is now solidly in turnaround mode and has plans to grow internationally as U.S. exceptionalism in markets may start to fade.
That said, he admits that in the recent past, “we probably grew assets too fast in 2022.”
Tolkin sat down with Pensions & Investments after the firm reported that its main Schonfeld Strategic Partners fund returned 20% last year, while Schonfeld Fundamental Equity returned 21%. The firm oversaw $12 billion in assets at the end of 2024.
Tolkin was the anointed successor to founder Steven Schonfeld, who started the firm as a family office in 1988 and began taking outside money in 2016. Tolkin worked as an intern at the firm before taking a job at Goldman Sachs. He rejoined Schonfeld and was hired as CIO in 2013. Since 2016, the firm has returned an annual average of 13% .
But Schonfeld's two main hedge funds lagged peers in 2022 and 2023, and faced heavy client redemptions to the point that Tolkin contemplated a merger with Israel Englander’s multistrategy fund firm Millennium Management. The deal ultimately fell apart in 2023, but the failed merger with Millennium Management was a turning point, he said. Schonfeld raised money from new and existing clients, and remained stand-alone.
After two years of underperforming its stated goal for investors of 12%-15% net returns per annum in 2022 and 2023, returns of the firm’s funds have recovered.
Schonfeld Strategic Partners returned 3.1% in 2023, and Schonfeld Fundamental Equity returned 4.8%, with assets falling to $10 billion. In 2022, Strategic Partners returned 4.4%; and Fundamental Equity 3.1% on $14 billion in assets.
Asked if he would ever consider another merger, Tolkin said, “I would never say never, but the benefits of our unique culture have proven we are highly likely to be successful as a stand-alone firm."
“We are a very resilient bunch. We take the long view. Going through that process made us realize that.”
Lessons on growth
Reflecting on the lessons learned over the past few years, Schonfeld’s CEO said that starting March 2023, he created a 12-person investment committee that “enhanced accountability” over the firm’s strategies, with strategy heads reporting directly to him. Schonfeld’s four main strategies are quantitative, long-short equity, tactical and discretionary macro/fixed income. Some business heads overseeing those strategies were promoted internally and others were hired from firms including Balyasny Asset Management, Citadel, Goldman Sachs, and Point72 Asset Management.
“I realized I needed to continue to surround myself with talented people with complementary skill sets who can help me," Tolkin said. The committee meets weekly and "provides us with diverse voices," he said.
For 2024, Tolkin attributed the turnaround in the quant strategy to gains in statistical arbitrage and trades around index rebalancing. The firm saw smaller yet solid gains in both its equity and event-driven trading over the course of the year, as well as in emerging markets.
What worked: the Fundamental Equity strategy's technology, healthcare, and industrials bets outperformed, as did returns in Asia, the U.S. and EMEA markets. Credit strategies saw gains in high yield and investment grade fixed income, he added.
“Our capital base is strong and stable,” Tolkin said. “And coming back from muted performance is never an easy thing. Our investors appreciate that.”
Schonfeld is among P&I’s largest institutional hedge funds, ranked No. 42 in P&I's 2024 survey of the largest funds. As of June 30, the firm reported assets of $10.6 billion, down 18.5% from the prior year. Roughly 63% of its assets came from institutional investors. By the end of 2024, AUM had climbed to $12 billion.
Investors in Schonfeld funds have included the Michael and Susan Dell Foundation, Huo Family Foundation, Variable Annuity Life Insurance, and Oregon State University’s endowment, according to PitchBook data and regulatory filings.
After several bumpy years, 15%-20% annual growth, both from organic and asset raising, “is the right rate,” he said.
The firm’s 950 headcount will remain fairly stable, with each major business head overseeing the strategies reporting directly to Tolkin. The investment committee meeting aims to include employees in its London, Middle East and Asia offices. Tolkin will visit the firm’s three offices in Asia later this month.
Schonfeld has a reputation for hiring and mentoring employees over the long term, and Tolkin points to the low turnover.
"I have been at the firm 12 years. We had 200 PMs over that period and only four left voluntarily. That said, we do occasionally get some decisions wrong. We have PM turnover of about 5%-7% annually. We replace them with nine to 10 new PMs and aim to grow both new and existing PMs over the course of the year. We want to hire the person who wants to stay for five to 10 years,” which is different from other multistrategy hedge funds with high turnover.
Growth internationally
Schonfeld wants to expand to roughly 50% of the portfolio mix coming from outside of the U.S. over a period of about five years, Tolkin said. To that end, the firm hired two executives in Dubai, Mitesh Parikh, co-head discretionary macro and fixed income, and Riccardo Riboldi, global head of emerging markets and Delta One, who have hired teams as well.
Barriers to entry outside the U.S. are meaningfully higher for alternative money managers, he said.
In addition, U.S. stock market returns have been higher for longer, but that may not continue.
“U.S. exceptionalism has been a tailwind for the markets. But it is likely that breadth expands beyond the U.S.” going forward, he said.
Currently, Schonfeld invest roughly 60% plus of its assets in U.S. markets and would like to cut that to 50% of assets, reaching 50-50 instead. “Sometime over the next five years is probably achievable, but we need to get there thoughtfully over time.”
For example, markets that look interesting currently include the Middle East, India, Brazil — which Tolkin calls “very dislocated” — Turkey, South Korea and other Asian markets, and South Africa. China's market “has been two steps forward, one step back. We trade with caution and remain balanced. If you want concentrated exposure, we are upfront with investors that we aren’t your answer.”
Market outlook
More dispersion in interest rates globally should benefit Schonfeld funds, Tolkin said.
“We live in a world where dispersion equals alpha. Current fiscal and monetary policies around the world are moving in different directions,” such as Japan increasing interest rates, while eurozone rates are likely coming down. “There is central bank policy divergence, fiscal uncertainty under the Trump administration, and the Twitter/X volleyball may persist among Trump officials," he said. Elections in France, Germany, the U.K. and elsewhere also could lead to volatility.
That said, 2023 “was a year when themes such as AI dominated, but in the second half of 2024 we saw investors discerning winners and losers.” Sectors of interest for Schonfeld include consumer stocks such as retail and financial services.
However, equity valuations “were very different in 2024 versus 2023. The tailwinds investors looked to don’t exist to the same extent," he said.