Aberdeen Asset Management Inc.'s acquisition of Arden Asset Management will bolster its capabilities in hedge fund portfolio construction, but not necessarily its assets under management — or revenue — in that market niche.
That's because 49% of the $11.3 billion of assets under management that New York-based hedge funds-of-funds manager Arden Asset Management LLC listed on its latest ADV form is from non-discretionary accounts.
Arden's institutional clientele pay much lower fees for non-discretionary accounts — sources estimate them to be in the five- to seven-basis-point range for large accounts — than the 1% management fee and 10% performance fee for discretionary management they would typically pay for a hedge fund-of-funds account.
Averell H. Mortimer, Arden's chairman and CEO, declined to be interviewed.
The acquisition by Aberdeen Asset Management PLC's Philadelphia-based U.S. subsidiary — the terms of which were not disclosed — will combine Arden's assets and 49 employees with Aberdeen's smaller hedge fund-of-funds team, which manages about $1 billion.
The deal is expected to close in the fourth quarter, pending regulatory approval, said a news release from the company.
Arden's split between assets under management and assets under advisement doesn't faze Andrew McCaffery, Aberdeen's London-based global head of alternatives. He's counting on Arden's 22 years of experience with hedge fund portfolio construction to fill a gap in Aberdeen's investment capabilities.
Sources said Aberdeen, which as of June 30 managed $483 billion in an array of traditional equity, fixed-income and real estate strategies, has been slow in its adoption of alternative investments.
Mr. McCaffery said combined assets of the firm's private equity, hedge funds of funds and infrastructure strategies accounted for about 3% of total assets as of June 30. That percentage is “up from zero” four or five years ago, but is not enough to provide the firm's clients with “what they need to meet their investment goals,” Mr. McCaffery said.
Aberdeen is on an acquisition quest that will provide the firm with “broader and distinct alternatives universe coverage. Alternatives are becoming core elements of a quality portfolio, and we need to fill in our gaps in that universe. We need to get as many tools as we can to provide investors with a variety of solutions in a variety of delivery mechanisms,” Mr. McCaffery said.
In May, Aberdeen announced it will acquire FLAG Capital Management LLC, Stamford, Conn., with $6.3 billion of invested and committed capital managed in venture capital, small-cap to midcap private equity and real assets in the U.S. and private equity in Asia.
After the FLAG Capital and Arden Asset Management deals close, Aberdeen's alternatives platform will total about $30 billion, or 6.2% of total assets. The percentage of assets likely will rise to the “high single digits” by year-end, Mr. McCaffery said.