Asset Managers Targets, Participants In M&A Deals

Jul 21 2006 | 5:44pm ET

Asset management firms were snapped up by buyers at a near-record pace in the first half, driven in part by interest in alternative asset managers. According to Putnam Lovell NBF Securities, of the 89 deals for fund management firms managing nearly $1 trillion, 20 (more than one-fifth) involved firms offering alternatives, especially hedge funds and funds-of-hedge funds, but also increasingly real estate managers and collateralized debt obligation specialists.

Last year, a total of 30 alternatives firms were acquired.

Putnam Lovell cites both the increasing interest in hedge funds among investors, and the recent tough times for returns, for the increased M&A activity.

The firm predicts that increasing regulatory pressure following a federal court's rejection of the Securities and Exchange Commission's hedge fund registration requirement, along with a difficult market environment, may force smaller hedge funds and alternatives firms to seek partners. A recently example of this is Mainstream Investment Advisers and Regent Group, both of which manage hedge funds. The two firms joined forces on June 30 to creating one entity with more than $450 million in assets under management. The partners at the new firm, which will operate under Mainstream's name, believed that by joining forces they would be better able to attract institutional investors.

Meanwhile, alternative firms are also doing the buying: Private equity firms have acquired firms managing more than $100 billion dollars in the first half, well above last year's total of approximately $80 billion, and already nearing 2004's record of almost $120 billion. Leading the charge was Hellman & Friedman, which backed the largest management buy-out in history, that of Gartmore Investment Management.

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