Fund of Hedge Funds M&A
Fund of Hedge Funds Headed for Further ConsolidationThere appears to be a new trend among fund of hedge funds: mergers and acquisitions. Deals like Franklin Resources' purchase of a majority stake in K2 Advisors shows that fund of funds firms are increasingly merging and acquiring other fund of funds. The industry is headed for a continued wave of consolidation, says Andrew McCaffery, Global Head of Hedge Funds at Aberdeen Asset Management.
Once a fast-growing source of capital for hedge funds, fund of funds - which try to pick the best managers and reduce risk by holding a basket of funds - have been hurt by criticism about their high fees and poor returns.
Many in the $627 billion sector are still to recover from redemptions in the financial crisis, forcing a round of dealmaking as bigger players snap up smaller, struggling rivals.
On Wednesday, U.S.-based K2 Advisors became the latest player to sell out after Franklin Resources said it would buy a majority stake.
That followed private equity group Kohlberg Kravis Robert's buyout of Prisma Capital Partners in June, and Man Group's May purchase of FRM.
"What you have is a number of businesses over the years which have been quite successful, have very good revenues, and now they are finding their performance is being compromised and their high-water mark is out here," Andrew McCaffery, Global Head of Hedge Funds at Aberdeen, told Reuters in an interview. Source