Wells Fargo & Co. will gradually pull its money from its in-house hedge fund but does not plan to split with Overland Advisors.
The San Francisco-based bank currently has about $2 billion invested with Overland, in a separate account segregated from the hedge fund's external investors. Wells Fargo will redeem about $150 million from Overland every quarter for the next three-and-a-half years, Bloomberg News reports.
But unlike some banks, notably Morgan Stanley, Wells Fargo will not spin-off Overland, which will remain part of its asset-management unit. Instead, the hedge fund unit will use the next few years to raise outside capital, which has been difficult due to uncertainty over new government regulations and their impact on Wells Fargo. Overland had raised only $204 million from outside clients when it launched its Relative Value Fund last March; Wells Fargo invested $3.5 billion.
But the newly-enacted Volcker rule strictly limits how much banks can invest in hedge funds, even their own, forcing Wells Fargo and other banks to reconsider their relationships with such funds.
Overland hopes to raise about $1 billion.
"There is some seed money in there from Wells Fargo," bank CFO Howard Atkins told Bloomberg. "Typically what happens is that seed money comes out after a period of time after the business grows, so I think of that as primarily a mechanism for third-party customers."
What is now Overland used to be a proprietary trading desk at Wells Fargo. But the firm moved the 22-member team to the asset management arm last year. Overland is headed by Gordy Holterman and Derek Dunn.