BOSTON - With a $110 million investment in Clinton Group, Boston-based TA Associates became one of the first private equity firms to invest in a hedge fund manager.
Clinton Group, New York, is the latest in a string of money management firms that have received funding from TA Associates, one of the leading private equity investors in money management firms. "We are a money management firm that likes to invest in money management firms," said Andy McLane, senior managing director at TA Associates.
Consultants say the investment in the hedge fund firm, as well as other money management firms, is fairly novel in the growth-oriented world of private equity investing. But Paul Yett, vice president and investment manager in the venture capital business at Hamilton Lane Advisors Inc., Bala Cynwyd, Pa., said TA Associates has a broader, more diversified investment strategy than most private equity firms, a strategy that has served them well in recent years. The Clinton Group investment shows that they are expanding beyond the traditional areas of private equity firms, looking to new growth areas.
"They have a good understanding of financial markets," said Mr. Yett, "and that comes through research."
Some of the firms TA has invested in over the last 10 years or so are AIM Management Group Inc., Houston, now part of AMVESCAP; Keystone Investments Inc., Boston, now part of Wachovia Corp.; Allegis Realty Investors LLC, Hartford, Conn., acquired by UBS Brinson; Altamira Management Ltd, Toronto; Thomson Advisory Group, Stamford, Conn.; Affiliated Manager Group, Boston; and ValueQuest Ltd., Marblehead, Mass., which became ValueQuest/TA.
AIM and Thomson, which became PIMCO Advisors LP, were TA's most successful investments, posting 24 times return on investment.
Altamira and Clinton are the only managers currently in TA portfolios. TA manages more than $5 billion in nine different portfolios for limited partners such as the $150 billion California Public Employees' Retirement System, Sacramento; the $27.6 billion pension fund of AT&T Corp., Basking Ridge, N.J., and the $26.8 billion Massachusetts Pension Reserves Investment Management Board, Boston. The portfolios, which focus on health care, technology, and financial services investments, were top quartile performers in 2001.
AMG, which is no longer in any TA portfolios, was formed by TA Associates in 1993 with Bill Nutt, formed Boston Co. president, as chief executive officer. AMG now has 15 subsidiaries and $92 billion in assets under management.
AMG is not a typical TA Associates investment. It traditionally invests in established firms with good performance records, management, and profitability, attributes tough to find in recent years. As the stock market downturn dragged assets and hurt traditional money management firms, TA Associates turned its sights to other areas within the industry.
The investment in Clinton Group reflects that shift. Hedge fund firms are one of the fastest-growing segments of the maturing money management industry. Worldwide hedge fund assets reached more than $500 billion in 2001, from about $15 billion in 1990. "There's a lot of growth in the hedge fund industry," said Mr. McLane.
In determining companies for investment, Mr. McLane said the Clinton Group stood out because of its long track record, strong management and leadership role in the hedge fund industry.
The Clinton Group, which manages $5.8 billion in assets, has seen its assets grow faster than the industry as a whole, said Mr. McLane. The firm, which focuses on fixed income and value equity strategies, manages money primarily for high-net-worth individuals and institutions, including pension funds.
Despite the market downturn, Mr. McLane said there are always new money management firms popping up. "Money management firms are like weeds. You pull them all out and new ones keep coming up," said Mr. McLane.
Launching another startup, like AMG in 1993, is something the firm would not rule out, he said; it would probably focus on private clients and high-net-worth individuals.