Hedge Fund Firm Investors
Man Group Hedge Fund Buys & What it Means for Investors
Man Group's investments in hedge funds may serve as a cautionary tale to hedge fund investors. Man Group first invested in BlueCrest Capital Management thinking that it would offer some diversification to Man, but BlueCrest eventually grew to mirror Man. Thus, Man Group had to go look for a new way to diversify its business and settled on a $1.6 billion acquisition of GLG Partners. It recently sold its stake in BlueCrest for $633 million.
When Man bought the stake back in 2003, it sought preferential access to BlueCrest's funds and to diversify its product range. But the capacity constraints Man had envisioned for its own funds never materialized. And BlueCrest, which had been a predominantly fixed-income manager, developed a rival to Man's main fund AHL in the form of BlueTrend, now responsible for half of BlueCrest's assets under management. That meant Man was forced to look elsewhere for product diversification: through its $1.6 billion acquisition of GLG Partners.
Banks, too, have been exiting from minority hedge-fund investments, spurred by changes to U.S. regulation that threaten to make ownership of such stakes difficult. Morgan Stanley has sold its stake in FrontPoint. Citigroup, too, is selling hedge-fund assets. True, some, such as Credit Suisse, are going the other way. But Royal Bank of Canada bought BlueBay Asset Management outright last year rather than taking a minority stake.
Hedge funds can be difficult businesses to value. Management departures can spark a wholesale flight of assets; strategy can be difficult to influence. Although Man's financial returns from the BlueCrest deal are impressive—it booked a pretax profit of $250 million from the disposal, on top of the share of BlueCrest's profits it has taken every year—it is unlikely to do a similar deal in the future. Source
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