Millennium suffered big losses in one of the $81 billion hedge fund’s favorite strategies last month

• Millennium had big losses in index rebalance strategies in November, sources tell Business Insider.
• At one point, teams led by star PMs Glen Scheinberg and Pratik Madhvani were down hundreds of millions.
• The firm was still positive in the month, but trailed rivals such as Citadel, Point72, and Balyasny.

It was a rough November for some of the biggest teams at a renowned hedge fund behemoth.

Izzy Englander's $81 billion Millennium suffered significant losses in its index-rebalance portfolios last month, several people told Business Insider.

Teams run by star money managers Glen Scheinberg and Pratik Madhvani were down hundreds of millions of dollars, these people said, though the final losses for the month are not clear, as the strategy had a small bounceback at the end of November. Millennium declined to comment.

The index rebalance pain was a big reason why the firm posted November returns below those of its peers such as Citadel, Point72, and Balyasny. The firm was up 0.5% last month and 8.3% on the year, Business Insider previously reported.

The index-rebalance strategy, in which portfolio managers bet on which stocks will be added to or removed from indexes such as the Russell 3000 or S&P 500 with the help of quantitative tools, has had a choppy year. Bloomberg reported earlier this year that these same teams lost close to $900 million in March.

It wasn't immediately clear what drove the losses at Millennium, but industry sources said many index-rebalance PMs across the industry were caught wrong-footed last month by the reconstitution of MSCI's indexes, one of the largest rebalancing events of the year.

The MSCI World Index is composed of the largest publicly traded companies around the globe, with Nvidia and other US tech giants making up significant portions of the nearly $90 trillion in assets benchmarked to it. The index whipsawed in November, falling almost 5% over about a week in the middle of the month before later recouping much of those losses.

On November 5, MSCI announced it would add 69 stocks — many tied to the AI boom — and remove another 64 from its Global Standard indexes, effective after the market close on November 24. Many of the names slated for inclusion sank during the rebalancing window, including the two largest additions, data-center darling CoreWeave and Netherlands-based AI-infrastructure firm Nebius. Meanwhile, several stocks set to be removed rallied.

The losses in AI stocks had PMs nervous leading up to Nvidia's November 19 earnings release, but Nvidia shocked the market with a strong quarter, and its stock popped, people familiar with the trade explained. Traders relaxed and lifted hedges just in time for the rally to fade, and AI stocks inexplicably plunged again on November 20.

"I think a lot of people were scratching their heads as to what was going on," one PM familiar with the trade said.

By the end of the month, however, the trend reversed, helping many index-rebalance PMs claw back some of their losses — a rebound that has continued into December, the people said.

Event-driven PMs who specialize in index changes try to forecast rebalances and their market impact, positioning to profit from the flows they expect passive funds to generate. The strategy, originally honed decades ago at investment banks, has become increasingly popular among major hedge funds and some proprietary trading firms over the last five years, contributing to crowding that can amplify volatility around these events.

Millennium has long been the biggest player in the trade. Puerto Rico-based Scheinberg, in particular, has been one of the firm's biggest traders. Along with Dubai-based Madhvani, the two senior investors oversee dozens of people across their two teams.

Scheinberg's earlier success was one of the drivers for Millennium's rivals to build out their own teams of index rebalance traders, though several firms cut staff after the strategy hit a dry spell in 2023.