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Fund of funds manager Forsyth in acquisition talks

Forsyth Partners, the fund of funds manager and fund research provider that had its distribution licence in Dubai withdrawn at the end of last month, has announced that it is in talks that may lead to the firm being taken over.

The Financial Times reported this week that Forsyth had hired advisers to find a new investor or buyer who could put up money to fund operations. Following the report, the firm confirmed in a statement that 'it is in discussions with a number of interested parties which could lead to an offer for the business,' saying that it expects to announce further details shortly.

The Dubai Financial Services Authority announced on August 27 that it had withdrawn the licence of Forsyth Partners Global Distributors 'to carry on financial services activities in or from the Dubai International Financial Centre after it failed to meet the applicable regulatory capital requirements and was unable to demonstrate a capacity to remedy that breach'. The DFSA also with drew the licence of another group subsidiary, Forsyth Partners (Middle East), at the firm's own request.

The DIFC subsequently announced that following the withdrawal of the licences and the change in status of the two companies from regulated to non-regulated entities, they had applied for and been issued with non-operational DIFC licences, whose purpose is to maintain the existence of the companies for a limited period to allow the Forsyth Group to restructure its operations and exit Dubai, but does not authorise operational activities.

Forsyth has also suffered, along with other managers, as a result of the fall-out from the US sub-prime mortgage market collapse and the valuation difficulties encountered by asset-backed securities. Last month the board of the Forsyth Alternative Income Fund announced that the fund would not pay any dividend to holders of distribution-paying shares for the six months from February 1 to the end of July.

'The Forsyth Alternative Income Fund enjoyed a strong start to the period, but problems with two Bear Stearns funds in late May lit the tinder under the sub-prime market in the US and the ensuing fire engulfed the global credit markets and spread to the equity market as investors' appetite for risk was challenged,' Forsyth said in a statement.

'This sudden, savage but not wholly unexpected correction led to a decline in the net asset value of shares in the Forsyth Alternative Income Fund during June and July. The directors of the fund have therefore decided not to declare any dividend to holders of D-class shares in the fund in respect of the period 1 February 2007 to 31 July 2007.

'It is important to stress that the investment manager has taken a prudent approach to all our managers in the CDO and credit instruments space. Our exposure is not large but the unprecedented write-downs have taken even seasoned commentators by surprise. This is a case of market overreaction and we believe there is good value still available, but the mark-downs have been as indiscriminate as they have been severe.'

Launched in 2003, the Forsyth Alternative Income Fund aims to deliver strong total returns in volatile markets. The fund of funds invests in a broad portfolio of hedge funds, as well as maintaining some exposure to sovereign debt, high yield corporate bonds, emerging market bonds and, on occasion, high yield equities.

The fund had assets of USD400.1m at the end of July, leaving it own 1.12 per cent for the year after losses of 0.22 per cent in June and 4.74 per cent in July, and boasts a cumulative return of 32.0 per cent since its launch on March 14, 2003. The fund, which offers both roll-up and distribution shares in various currency classes, carries an annual management fee of 1.5 per cent and a performance fee of 20 per cent on annual returns exceeding 7 per cent.

Founded in 1991 by Paul Forsyth, Forsyth Partners manages more than USD1.15bn in a range of traditional and alternative funds of funds and managed accounts and advises on around USD2bn under advisory contracts. The group, which also has offices in the UK, Zurich, Sofia, Cape Town, Seoul, Taipei and Montevideo, has served more than 600 client companies in some 55 countries.

Forsyth Partners' range of international offshore funds covers equities, fixed interest, hedge fund, property and commodities and includes the Dublin-based Forsyth Funds umbrella structures, the Forsyth Managed Selection Series, the Forsyth Tailored Selection Series for single-manager funds, a range of funds of hedge funds and the multi-asset class Forsyth Managed Strategies series.

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