Man Group is to acquire the investment management contracts from Merrill Lynch Alternative Investments to manage a portfolio of multi-strategy and strategy-focused fund of hedge funds with total AUM of USD1.2 billion.
The acquisition is expected to complete in the second quarter of 2015, subject to certain approvals and consents, including approval of the board of managers and investors of a US registered investment company.
Man Group’s fund of hedge fund arm, FRM, has been selected to manage the Portfolio following a due diligence process which assessed its investment expertise, quality of personnel, investment process and ability to service clients. Following the completion of the Acquisition, Man Group intends to offer the funds to other investors globally as well as Merrill Lynch’s and US Trust’s wealth management clients.
The Acquisition of the Portfolio follows Man Group’s recent Acquisition of Pine Grove Asset Management LLC. The strategic rationale for the Acquisition includes:
• Continued participation in the consolidation of the fund of hedge fund industry;
• Further expansion of Man Group’s footprint in the US;
• Increased commitment to the US wealth management channel;
• Synergistic partnership allowing Man Group and Merrill Lynch to deliver high quality investment solutions for clients;
• Broadened portfolio of US registered investment companies and complementary fund of hedge fund products; and
• Expansion of FRM’s existing co-mingled fund platform and managed accounts.
The assets, which will be acquired, are spread across 17 multi manager hedge fund and managed futures fund of funds. One fund is registered as an investment company with the US Securities and Exchange Commission, while the others are private. All of the funds would complement Man Group’s and FRM’s existing product offering, with three multi-strategy funds and 14 strategy-focused funds. This would include emerging markets, equity long / short, global macro, relative value, managed futures and other credit-focused products.
The consideration will be paid to Merrill Lynch in cash from existing resources, and comprises:
• An upfront payment of USD2.9 million, paid upon completion of the transaction;
• 35% of the net management fees generated annually by the Portfolio, payable annually for five years;
• The total payments under the earn-outs cannot exceed USD30.0 million.
As at 31 October 2014, the Portfolio generated run rate net management fees of USD6.2 million. The transaction is structured as an asset purchase and, as such, no additional costs are expected to be incurred, nor synergies generated. The regulatory capital requirement associated with the Acquisition is expected to be approximately USD10.0 million.
Michelle McCloskey, Senior Managing Director of FRM, says: “We are excited that Merrill Lynch has selected FRM as the steward of its world-class portfolio of multi-strategy and strategy-focused funds, supported by a proven distribution platform. We look forward to continuing to deliver high quality products and services to Merrill Lynch’s clients, while expanding the investor base globally as investors increasingly seek exposure to alternative investments through managers like Man Group.”
