La Francaise and Tages Capital to merge funds of funds' businesses
The funds of hedge funds’ businesses of Tages Capital and La Francaise are to merge creating a joint venture with $3 billion in Assets under Management (AuM).
The deal, subject to regulatory approval, will see France-based La Francaise acquire a 40% stake in Tages Capital while it will delegate management of its existing funds of hedge funds and UCITS funds to Tages Capital in London.
Established in 2011 at a time when funds of hedge funds were in perennial decline, Tages Capital appears to have bucked the trend. In addition to its fund of hedge funds offering, it has a corporate finance advisory business and a distressed debt unit.
A number of funds of hedge funds have merged or liquidated following the financial crisis, something which is likely to continue, according to a report by Towers Watson. In 2012, EIM was sold to Gottex Fund Management creating a $10 billion joint venture, while Carlyle Group bought the Toronto-based Diversified Global Asset Management, and Morgan Creek acquired Signet Group.
Many of these firms have elected to merge in order to attain size and scale. The asset class as a whole continues to decline although recent figures from Eurekahedge, a data provider, indicated assets managed by funds of hedge funds shrunk at a slower rate in 2013 than previous years.
Eurekahedge data estimates funds of hedge funds now control roughly $507.6 billion or 38.6% below their 2008 peak. A 2013 investor survey by Goldman Sachs prime brokerage found funds of hedge funds comprised just 35% of respondents, down from 61% in 2008.
Nonetheless, funds of hedge funds, having posted negative returns over the last five years, saw gains of 7.47% in 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 – which some attributed to the equity market rally, many funds of hedge funds are struggling to compete with the far cheaper investment consultants.
Experts have argued funds of hedge funds need to charge lower fees, customise portfolios, emphasise their operational due diligence credentials and provide investors with exposure to niche or emerging strategies if they are to survive going forward.