Permal acquires Fauchier as M&A activity continues
Permal is to acquire Fauchier Partners from BNP Paribas Investment Partners as M&A activity in the funds of funds space continues.
The deal, which is expected to close in Q1 2013, will create a business running $24 billion in AuM with investment teams based in New York, London, Paris and Singapore. The combined entity will be run jointly by Robert Kaplan, chief investment officer at Permal and Clark Fenton, CEO at Fauchier Partners. Terms of the deal were not disclosed.
Fauchier Partners’ investor base is comprised predominantly of European and Asia-Pacific institutions while Permal has historically had a strong US presence. The new set up will enable both firms to leverage each others’ distribution channels with Isaac Souede, CEO at Permal, acknowledging the deal would enhance the group’s institutional presence in Asia and Europe.
The deal will enable Permal to add equity hedge and event driven strategies to its fixed income, macro and credit products. The statement added Permal would continue to work with BNP Paribas Investment Partners.
M&A at funds of funds has been rife since the crisis. Credit Suisse’s 2012 hedge fund investor survey revealed 43% of funds of funds are looking to be acquired – a massive jump from 21% in 2011. This year has seen some high-profile deals. Man GLG acquired FRM, the $8 billion fund of funds, creating the largest, non-US fund of funds, while Switzerland-based Gottex Fund Management took over the $434 million Hong Kong-based Penjing Asset Management. Nexar Capital was sold to UBP while EIM, the fund of funds established by Arpad Busson, is still up for sale although no buyer has been forthcoming.
This activity follows several years of poor performance and investor redemptions. According to an S&P Capital IQ Fund Research report, 90% of funds of funds would be considered “ungradable” had their performance been measured against absolute rather than relative return benchmarks.
The industry faced serious questions over its operational due diligence, particularly following revelations that some brand names including EIM and UBP put money into Bernard Madoff. Other investors resent the added layer of fees associated with funds of funds, and are now opting to invest directly into hedge funds or via consultants. Assets have steadily declined at funds of funds since the crisis, having fallen from $1.2 trillion in 2007 to approximately $533 billion.
Nonetheless, numerous funds of funds have reinvented their business model focusing on emerging managers or niche strategies, while bolstering their operational due diligence standards. This has been recognised by investors. An SEI study revealed 72% of investors and consultants believed funds of funds played a valuable role in institutional portfolios, and 84% predicted the asset class would exist in 20 years.
Despite this optimism, funds of funds’ survival is not a foregone conclusion, as the model still needs to evolve. SEI advised funds of funds customise portfolios, focus on emerging managers and niche strategies, enforce proactive risk management, adopt more portfolio concentration and specialisation, create managed accounts, offer consultancy services and lower fees.