The recent acquisitions of K2 Advisors, Prisma Capital Partners and FRM Holdings could be the beginning of a new wave of consolidation in the fund of hedge funds industry, one player suggests.
Aberdeen Asset Management's Andrew McCaffery said that the recent acquisitions—notably Man's purchase of FRM—and continued struggles among funds of funds is likely to force hands, especially among smaller managers.
"Business models when you have got $1, $2, $3 billion are severely compromised when you are a single company," McCaffery, global head of hedge funds at Aberdeen, told Reuters.
"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," he added. Combined with the industry's struggles to garner and retain assets, that could force funds of funds to accept lower valuations than they might want, as FRM did when it sold itself to Man for nothing up front.
McCaffery said that deal has the potential to be a "game-changer."
"In some cases the problem is there may be no price for a deal, because if they carry on like that they undermine the business," he said. "If people leave, assets leave, and if they both leave together it's a very different situation."