Man To Buy FRM Holdings

May 21 2012 | 9:04am ET

The world’s largest hedge fund group is about to get larger: Man Group has agreed to buy FRM Holdings, an $8.0 billion fund of funds.

In a statement announcing the purchase, Man said no consideration would be paid up front but a “contingent consideration based on asset retention” will be paid over three years. This will include a maximum of $82.8 million in cash, net of total assets acquired (subject to post-closing balance sheet adjustments) and a 47.5% share of performance fees attributable to FRM’s existing funds under management over three years, subject to a cap.

FRM’s assets will be integrated with Man’s multi-manager business, making it the largest independent non-US based fund of hedge funds with assets under management of $19 billion. The combined business will operate under the FRM brand name and be led by Luke Ellis, chief executive of Man Multi-Manager (and former FRM managing director). Blaine Tomlinson, founder of FRM, will become non-executive chairman of the combined business.

Sumitomo Mitsui Trust Bank, which advises a significant portion of FRM’s investors, has endorsed the acquisition by agreeing a new 10-year strategic relationship agreement with Man. SMTB will also exchange its current shareholding in FRM for a minority holding of preference shares in RBH Holdings (Jersey) Limited, a Man subsidiary.

Man says operational synergies resulting from the combined group will result in savings of $45 million per annum.

Peter Clarke, chief executive of Man, said in a statement: “This financially compelling transaction provides us with the opportunity to significantly improve the profitability of our multi-manager business. By combining the complementary investor bases of the two businesses and pairing FRM’s well-regarded investment process with Man’s managed accounts infrastructure, we can increase revenues with no material change to Man's current cost base. The transaction has been structured so that the consideration adjusts in line with asset retention, to ensure an attractive return for our shareholders."


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