Fund of Hedge Funds M&A

Fund of Hedge Funds M&A

Fund of Hedge Funds Headed for Further Consolidation

There 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

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