Asset Management Holiday Sale: 60% Off

Apparently retailers aren’t the only ones discounting their merchandise to bring wary shoppers into their stores this Holiday season.  Asset management firms are now priced to move.  Since their top lines are levered to the absolute value of capital markets, asset managers have seen a precipitous drop in their valuations recently.  In fact, the following chart from Pensions & Investments shows how valuations have fallen further than the overall stock market and even further than their own 2009 EPS estimates.

Retailers are proving this season, such deep discounting is bound to drive up volumes.  As Pensions & Investments noted:

“While the big drop in shares of money managers has not led to a burst of industry mergers and acquisitions, insiders do expect to see more consolidation, starting with midsize firms with mediocre performance.”

Consolidation

This “consolidation” has been gathering steam.  Reuters reported last week that $9 billion hedge fund manager PAAMCO picked up a stocking-stuffer in the form of Asian markets specialist $700 million KBC Alpha Asset Management.

It seems that shoppers are particularly interested in merchandise that is slightly damaged, but can be easily fixed (think Ikea’s “As Is” section).  Venerable hedge fund GLG Partners attracted immediate interest last month when it reported a few scratches and imperfections.  Reported Thomson Investment News:

“Hedge fund firm GLG Partners said on Monday that it had been approached by a number of sovereign wealth funds or families interested in making an investment, as it reported lower net income and assets.”

Man Group CEO Peter Clarke told Reuters last month that he’s going to wait until after Christmas Day to see what kind of deals he can score.  Said Clarke:

“Consolidation is undoubtedly going to happen … Longer-term we’d expect to be a consolidator in these markets…”

Even relatively puny hedge fund players are looking for something to put under the tree this year.  Hedge Funds Review reports that $600 million SilverStreet Capital sees opportunity for acquisitions.  Its CEO tells the magazine that micro-funds will have to read the writing on the wall:

“When the hedge fund market was growing, they could realistically expect to grow to anywhere between $500 million and $1 billion in assets within a few years. However, in an environment where hedge funds assets are not expected to grow, and may even shrink, these companies will have to re-asses their future. There is a lot of potential for acquisitions.”

Convergence

Last spring Richard Heller with New York law firm Thomson Hine told HFM Week what he thought would eventually drive acquisitions:

“There is also a convergence between private equity and hedge funds competing for the same investments. As a consequence, it’s actually easier in a sense to buy an entire fund than to go after piecemeal investments in which some of these funds already have positions.”

We’re seeing examples of this convergence right now.  For example, traditional long-only managers are also shopping for alternative managers.  The CEO of UK-based money manager Aberdeen told Thomson recently that he’s checking out the bargains:

“Funds of hedge funds (FOHFs) and funds of private equity are a lot cheaper than they were six months ago, and they are significantly cheaper than they were two years ago…FOHFs, for example, were selling for 15 percent of assets under management two years ago. They are now down to very, very manageable levels, very attractive levels, and a lot of them are subscale, so I think there is an opportunity to consolidate in that area…”

But read the return policy

Alas.  Sometimes the perfect gift just doesn’t seem to work out.  As Wealth Bulletin reports, some lightly worn acquisitions can still be returned for a refund or in-store credit:

“The acquisition of the fund of hedge funds IAM by Dutch bank ABN Amro in 2006 was reversed this year by its management buyout from Dutch-Belgo bank Fortis, which had bought ABN Amro’s asset management arm holding IAM.”

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