The acquisition by British hedge fund giant Man Group (EMG) of rival firm GLG Partners (GLG) not only catapults the firm to the top of the hedge fund league, but sets the stage for a likely big push into the U.S. market.
Man Group announced Monday that it's buying GLG, which is also London-based but listed on the New York stock exchange, for about $1.6 billion. GLG shareholders will get $4.50 in cash per share, a 55% premium over the stock's closing price on Friday.
$63 Billion Under Management
The combined firm will have about $63 billion in assets under management. In comparison, the largest U.S. hedge fund manager, J.P. Morgan Asset Management, which also owns Highbridge Capital Management, had $53.5 billion under management as of Dec. 31, and No. 2 ranked Bridgewater had $43.6 billion.
Man Group and GLG have relatively little overlap geographically. With about $40 billion in assets, Man's institutional asset base is primarily in Switzerland, Germany and the U.K. Its private investor base is primarily in Asia, with 25% in Japan, 25% in Asia outside Japan and 34% in Europe. GLG's investor base is mainly in southern Europe and Asia.
Man executives said the combined firm would concentrate on developing new business in the U.S. market. "We both feel we can get a lot further" in the U.S., Man Group CEO Peter Clark said in a London conference call, according to Reuters. "This is the most significant move in alternative investment that we have seen, and will see for some time."
U.S. Market Attractions
At GLG, for example, about 20% of its hedge fund assets are invested in the U.S., while only about 5% of its assets came from U.S. investors. GLG Co-CEO Noam Gottesman, who is staying with the combined firm, recently announced that it had won a $250 million mandate from an institutional U.S. investor as part of its expansion drive in the American market.
One of the attractions of the U.S. hedge fund market is that it's growing substantially at a time of relative stagnation in Europe. Man Group's profit fell to $530 million in the year ended March 31, compared with $1.2 billion a year earlier. Man Group's flagship AHL Diversified Futures strategy was down 16.4% in the year ended Dec. 28, while many rival hedge funds had a boom year in 2009. GLG lost $319 million in 2009, about half the $631 million it lost in 2008.
"One of the things that this acquisition is showing is that the hedge funds that didn't do well in 2009, and had trouble after the collapse of the financial industry in 2008, have shown that if they're going to survive, they're going to have to look to different strategies," says Matt Simon, an analyst with the TABB Group research firm in New York. "They're going to have to be nimble with their investment practices, and they have to find new ways to acquire that same alpha that they had in the past."
Bullish About Investors Coming Back
Simon recently conducted a survey of hedge fund managers in the U.S., who said they were "bullish about investors coming back in the door." Simon estimates that hedge fund equity commission revenue will rise 9% in 2010, which he says is a "good indicator that volumes are going to pick up this year."
Man Group said it expects about $50 million a year in cost savings by combining the two companies. The relatively small savings is an indication that the two firms don't compete much in the world market.