Gottex and EIM to merge
Gottex Fund Management and EIM Group are to merge creating a combined business with just under $10 billion in Assets under Management (AuM).
The deal will give Gottex ownership of 70% of the enlarged group although the transaction is still subject to approval by regulators and Gottex’s shareholders. The integration plan should be completed in six to nine months. In a statement, Gottex said the deal would enable it to become better diversified and expand its global footprint.
EIM, a Switzerland-based fund of hedge funds established by Arpad Busson, has been on the market for several years now. EIM took a serious hit in 2008 suffering mass redemptions when it was revealed it had a $230 million exposure to Bernard Madoff.
It is expected that Joachim Gottschalk, chairman and CEO at Gottex, will remain as group CEO in the combined business while Busson is to become non-executive chairman. All senior Gottex executives will remain on the executive management committee, although EIM executives, Eric Bissonnier and Hywel Evans will join the committee as co-CIO and corporate counsel for Europe respectively.
Gottex has made a series of acquisitions over the last 18 months. In 2012, it purchased Penjing, the Hong Kong-based fund of hedge funds, and Frontier Investment Management, a London-based multi-asset firm.
Gottex has also expanded its Asia-Pacific product and distribution network through the creation of Gottex-VStone Asset Management in Shanghai, as well as establishing partnerships with Staples Rodway in New Zealand, Zenith Gottex Advisors in Australia and Astmax in Japan.
Funds of hedge funds have taken a serious pounding since the financial crisis following five years of substandard performance. Recent figures from Eurekahedge, a data provider, indicated assets managed by funds of hedge funds continued to shrink this year albeit at a slower rate with the asset class now running around $507.6 billion, or 38.6% below its 2008 peak. Another indicator of their decline was evidenced in Goldman Sachs prime brokerage’s 2013 survey of institutional investors whereby funds of hedge funds comprised just 35% of respondents, down from 61% in 2008.
M&A activity at these businesses has been widespread as they seek to attain scale in order to survive. This year has seen several high profile deals including Carlyle Group’s purchase of the Toronto-based Diversified Global Asset Management while Morgan Creek acquired Signet Group.
A study by Towers Watson acknowledged that while funds of hedge funds were offering customised portfolios and fee discounts, it expected consolidations and liquidations to continue. One executive at Towers Watson said funds of hedge funds needed at least $1.5 billion to survive and roughly $7 billion to thrive.
Funds of hedge funds, having posted negative returns over the last five years, saw gains of 7.47% year-to-date 2013, narrowly trailing the average hedge fund manager’s performance of 8.31%, according to data from the Chicago-based hedge Fund Research. Despite this turnaround, many funds of hedge funds are struggling to compete with investment consultants, which have taken away much of their business since 2008.