Two of the world's largest banks, Lehman Holdings Inc. and JPMorgan Chase are buying into the funds of hedge funds business by acquiring major players.
Lehman Holdings Inc. is negotiating to buy USD 11 billion London-based fund of hedge funds GLG Partners while JPMorgan is acquiring a majority stake in USD 7 billion New York-based Highbridge Capital Management.
The acquisition of GLG would give Lehman another way to reach institutional clients and wealthy investors. Last year, the firm paid USD 2.63 billion to buy Neuberger Berman, an asset management company geared to high net worth investors.
London-based GLG has over USD 11 billion in assets under management, making it one of the world's largest FoHFs. The terms of the deal have not been disclosed.
In 2001, British regulators launched a probe into GLG and another hedge fund to see whether they paid unusually high trading commissions to Wall Street firms in exchange for coveted shares of IPOs. No charges have been brought against GLG, which has denied wrongdoing.
GLG was founded by Noam Gottesman, Pierre LaGrange and Jonathan Green in the 1990s. The trio hailed from Lehman and before that, two of them had worked at Goldman Sachs, where they managed money for wealthy individuals. GLG now has traders overseeing 16 different investment strategies, ranging from trading of currencies to distressed debt.
Meanwhile, JPMorgan, led by President Jamie Dimon, will acquire a majority of Highbridge, the New York-based company said in a statement. Terms of the transaction weren't disclosed. Highbridge, founded in 1992 by Glenn Dubin and Henry Swieca, oversees about USD 7 billion in assets under management.
JPMorgan views he Highbridge stake as a way to capture more clients with at least USD 1 million to invest. Jes Staley, head of JPMorgan's wealth management group, said: "The acquisition will be "a tremendous addition to our investment offerings for institutional and high net-worth clients."
JPMorgan already has about USD 11 billion of hedge fund assets and already directs some of its clients to invest in Highbridge's funds..
Highbridge is known for its arbitrage strategies, which use computer programs to identify investment opportunities.
Hedge funds are attracting these bank buyers because they charge fees equal to at least 1 percent of assets under management, plus they take on average 20 percent of any returns they generate. Fees on bank-run mutual funds, by contrast, average at 5 percent.
The banks are also making sure that they have in-house FoHF skills to offer institutional and HNWI clients who are increasingly including an allocation to absolute return products to their portfolios.