Usually asset managers or banks buy hedge funds, not the other way around.
An exception is the recent decision by $10 billion hedge fund manager Angelo Gordon & Co. to buy New York equity investment firm ForstmannLeff Associates, as first reported by the
Wall Street Journal
. The reason is simple: investors want alternative investments and traditional products under one roof.
What's less known is the nature of the transaction. In its recent letter of intent, Angelo said it would buy a majority interest in the $3 billion money management company, while Forstmann's management team owns the remaining stake.
"Both Angelo Gordon and ForstmannLeff's management will put their own capital into Forstmann in order to recapitalize the company. It's a partnership," says an Angelo Gordon's insider. The rationale is that both clients and investors want a management team that puts its own money at risk, this person says. Apparently, Forstmann's management was also interested in keeping an interest in its equity niche.
Both sides are in discussion to determine whether Forstmann should retain its name. The partnership will complement Angelo Gordon's other strategies, which are focused on credit, distressed debt, real estate and private equity.
Activist investors often get a better hearing in financial markets than they do with the managers they target. This appears to be the case with
. On Jan. 3, Mellon announced the combination of its Dreyfus Mutual Fund unit with its institutional asset management group. It's not exactly what hedge fund Highfields Capital wanted three days before Christmas, when it urged Mellon to separate its investment management business from its custodial operations.
What's interesting is that investors got excited on both pieces of news. The shares rose by 3% on Dec. 22, when Highfields urged the spinoff, and by 2.7% on Jan. 3, the day of the company's announcement. For Richard Bove, an analyst at Punk, Ziegel & Co, the market got it wrong. It misinterpreted the company's announcement and saw in it confirmation that Mellon was breaking up, as Highfields envisioned.
Bove says a lot of people bought the stock on this misconception. The recent announcement is a continuation of changes initiated 18 months ago, with Dreyfus becoming more of a distribution channel, he adds. Richard Grubman, Highfields' founder, did not return calls.
Getting the result Highfields wants at Mellon might be harder than it seems. "Those guys at Highfields think that they can replicate what happened at Morgan Stanley, just by sending a letter to the board that was ignored," says Bove.
One of the biggest criticisms of hedge funds involves their secrecy. There are plenty of hedge fund databases, such as HedgeFund.net, Hedge Fund Research, Lipper/TASS, Barclay's Global HedgeSource or Altvest. But the information delivered is almost never free, often disparate and sometimes incomplete. Part of the problem is that managers shy away from providing data, and rarely want to do it real time. Apparently, though, things are improving.
A recently released study found that transparency is on the rise. By combining 12 databases, it found 41,000 hedge fund records across all categories, a jump of more than 16,000 entries from 2004. This indicates an improvement in data collection on the part of the hedge fund databases, according to Strategic Financial Solutions, which published the study.
Screening the different databases and eliminating duplicates, the study also identified interesting numbers regarding the global hedge fund universe. Strategic Financial Solutions says its research indicates hedge funds manage a total of $1.35 trillion of assets. Of that, about $700 billion is invested through funds of funds. Also: there are 8,100 hedge fund managers; 4,150 funds of funds; and nearly 3,500 fund managers, or general partners. In addition, more than 250 funds have surpassed the $1 billion mark.