Updated with correction
The acquisition of Citigroup's hedge fund management unit by SkyBridge Capital LLC is just the first in what investment bankers predict will be a buying spree of hedge funds-of-funds managers.
After two years in which hedge funds-of-funds acquisitions were few and far between, 2010 is shaping up to be the year when big money managers add companies that will give them hedge fund manager selection capabilities.
CEOs of institutionally oriented hedge funds-of-funds companies, who asked for anonymity because of confidentiality agreements, reported receiving many calls in the first quarter from investment bankers and potential buyers.
Asset managers much larger than SkyBridge also are in the market for healthy institutionally oriented hedge funds-of-funds managers with between $3 billion and $10 billion under management and absolutely no baggage, such as Madoff exposure or lingering liquidity problems.
Among firms identified by observers as being potentially very attractive to big buyers were Rock Creek Group, Mesirow Advanced Strategies Inc., Pine Grove Associates Inc. and Archstone Partners.
Observers said Ermitage Group is among the few actively trying to sell all or part of their firms. BNY Mellon Asset Management had been trying to sell its Ivy Asset Management unit prior to shuttering the business earlier this month, sources said.
Rumors have been swirling for the past few weeks about possible acquisitions of midsize to large hedge funds-of-funds companies by AllianceBernstein LP and Credit Suisse Asset Management. Company executives wouldn't comment.
Peter S. Kraus, who's been AllianceBernstein's chairman and CEO for about 15 months, is poised to make changes at the firm, including acquisitions, and has been especially keen in recent months on finding a hedge funds-of-funds manager, said industry sources who asked not to be named.
“Peter is an investment banker and this is how he knows to make changes,” said a consultant who requested anonymity.
“Diversified asset managers really are looking at hedge funds-of-funds acquisitions for the first time in some years. In 2009, everything was on hold as potential acquirers waited for various scandals and liquidity challenges to play out,” said Aaron H. Dorr, managing director and head of the financial institutions group at Jefferies & Co. Inc., New York.
“In 2010, there is growing interest among buyers ... Many have come to the realization that institutional investors face many hurdles in selecting hedge funds and that that risk is best intermediated. This is a strong endorsement for the hedge funds-of-funds model. Large asset managers that don't have hedge funds of funds are definitely out there looking,” said Mr. Dorr.
Kevin P. Quirk, a consultant to money managers, agreed that large managers definitely have their checkbooks out for hedge funds of funds. He added that the industry “already has consolidated considerably. The list has already been culled. Madoff and other scandals and liquidity mismatches have already knocked out a lot of firms.” Mr. Quirk is founding partner and principal at Casey Quirk & Associates LLC, Darien, Conn.