NEW YORK (The Deal) -- Alternative asset management is earmarked as a sector ripe for deal activity, as banks restructure and private equity players diversify.
Dealmakers say regulation such as the Volcker Rule (which restricts banks from certain speculative investments) along with higher capital requirements, have prompted many banks to divest their alternative asset businesses.
By contrast, private equity firms and players unencumbered by tougher regulation have been broadening their mandates. Yet advisers say activity is steady rather than a flurry, given the difficulty in valuing performance fees and hedge fund businesses.
Sandler O'Neill + Partners managing director in investment banking Chris Browne said asset management was mostly a buyer's market. "It's not as easy to go to market with a sell-side mandate, unless that business is a very differentiated long-only manager or an alternative manager," he said.Browne noted approximately 37% of all asset manager sector deal activity in the first half of the year involved alternative managers. He cited Fidelity and Franklin Templeton as examples of managers seeking to boost their investment offerings with fund-of-hedge-fund products. There were 73 asset management deals in the first half of 2013 according to Sandler O'Neill, a 10% decrease from the first half of last year. And for the second quarter of 2013, targets accounted for $641 billion of asset under management versus $671 billion in the first quarter. Banks continue to divest alternative asset units--Credit Suisse (CS) last week announced the sale of its $20 billion private equity business to Grosvenor Capital in a deal said to be worth more than $200 million. Bankers said such sales typically attracted higher multiples than for a core banking business, making divestments an efficient way to generate capital rather than conduct a fund raising. Many private equity firms are willing buyers of these assets. Seward & Kissel partner Jim Abbott noted the transformation of large PE players--which traditionally focus on leveraged buyouts--into full service investment managers, investing in debt, CLO management and alternatives. "A number of PE firms are doing minority and majority deals [taking stakes in hedge fund managers] with more to come" he said.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV