| Luke Ellis |
With two new acquisitions, London-based Man Group, the global hedge fund firm, is hoping to jump-start its business in the U.S., particularly in its fund-of-funds unit, which has shed billions in assets since 2012. Man completed its acquisition of the $1 billion fund of funds Pine Grove Asset Management, a Summit, New Jersey–based credit specialist, on August 1, and plans to finalize the purchase of Numeric Holdings in September. Numeric, based in Boston, is a quantitative equity manager that oversees $14.7 billion in assets. The locations were crucial in both deals. Man Group CEO Emmanuel Roman and president Luke Ellis have made no secret about their wish to gain market share in the U.S.
“We have been very public about the fact that for a firm of our size and success, our U.S. footprint is relatively small,” says Ellis. Man Group’s year-end report for 2013 shows that just 7 percent of the firm’s total assets under management came from “the Americas”; the report lumps both continents together as a capital source.
Pine Grove and Numeric both get the bulk of their investment from North America. The two deals will bring the Americas share of Man assets to 16 percent while boosting total Man assets to $73.4 billion.
Numeric will represent 25 percent of Man Group’s total AUM. “It’s a significant acquisition,” notes Denzil De Bie, a financial institutions research director at Fitch Ratings in London. The strategy diversification is a good move, he says. Man Group has relied mostly on its managed futures strategies run by the Man AHL division for growth.
The acquisition of Pine Grove has added $1 billion to Man’s AUM. While that will account for only 2 percent of Man Group’s total assets, it’s important for funds of funds to pile on both assets and growth strategies.
The whole fund-of-funds business is undergoing significant change; funds of hedge funds lost 40 percent of their assets between 2008 and 2013 as investors moved away from the model in droves. But the heads of Man Group have struggled to rebuild the firm’s fund of funds since 2008 not only because of the changing business model, but also because the unit, then called RMF, lost money in Bernard Madoff’s Ponzi scheme. Man bought the London fund of funds FRM Holdings in 2012 and rebranded its fund-of-funds unit by that name. FRM has experienced a wave of redemptions in its legacy fund of funds, dropping from $16.7 billion in assets at the end of 2013 to its present $11.5 billion.
More than half of the $45.6 billion in new money that funds of funds raised in 2013 went to the ten largest firms, where assets are being increasingly consolidated.
That concentration at the top is helping fuel a wave of consolidation as smaller funds of funds scramble for survival. J. Tomilson Hill, CEO of Blackstone Alternative Asset Management, which operates a $55 billion fund of funds that is the world’s largest, has said that more than half of the money BAAM has raised over the past five years has come at the expense of rivals who are seeing their investors switch to BAAM. As one investment adviser noted, the fund-of-funds game is becoming increasingly a situation of assets moving up to the top-tier firms and “everyone else sliding down.”
Man’s bid to keep up at FRM depends partly on acquisitions. Ellis says Man remains open to additional fund-of-funds acquisitions, although he figures he can do deals without overspending on candidates. “Some people believe they deserve the same price as fund of funds were getting pre-2008,” Ellis says. “The price has to be realistic.”
Matthew Stadtmauer, former president of Pine Grove and now president of FRM, a newly created position, says the two firms will complement each other: “Everything Man Group has, we don’t have, which is why we find the deal very strategic.” Man Group, Stadtmauer says, will provide a platform for global research, customized accounts, a global footprint and a strong infrastructure already in place in New York, while Pine Grove, in addition to the U.S. investor base, will bring a dedicated credit fund. FRM has invested in credit strategies, but it doesn’t have a dedicated credit fund.
(Additional reporting by Georgina Hurst)
