BlackRock acquires fund of hedge funds business

HPB is run by Howard P. Berkowitz, a 30-year industry veteran and former partner of hedge fund legend Michael Steinhardt. Following the completion of the the acquisition, Mr. Berkowitz will join BlackRock as a Managing Director and Chief Executive of the firm’s fund of hedge funds business.

Laurence D. Fink, Chairman and Chief Executive of BlackRock, said: "Fund of funds is a natural extension of our alternative-investment offerings."

BlackRock, a unit of PNC Financial Services Group Inc., has just over US$3 billion under management in hedge funds, out of a total of US$273 billion under management. The acquisition of HPB follows that of Cyllenius Capital Management, a hedge fund firm, last year. BlackRock also runs a multistrategy fixed income hedge fund, Obsidian.

In addition to buying Cyllenius, BlackRock hired away a team of quantitative investment managers from fund boutique Weiss Peck & Greer in February. The firm also hired a number of professionals who specialise in marketing investments to wealthy individuals through both mutual funds and separately managed accounts.

HPB, also based in New York, has US$150 million under management, primarily on behalf of wealthy individuals. It represents BlackRock’s first foray into the fund of hedge funds business. For BlackRock, the deal also furthers a strategy of decreasing its reliance on fixed-income investments and institutional investors. Bonds and money-market funds accounted for more than 90 per cent of the company’s overall assets under management of US$273 billion at the end of last year.

US mutual fund companies entering the fund of hedge funds business have found it easier to acquire or team up with a hedge fund specialist rather than develop that expertise in-house. Phoenix Cos. joined forces with Arden Asset Management, while Franklin Resources Inc. teamed up with Auda Group, and Oppenheimer Funds acquired Tremont Advisers.

For HPB, which currently caters to wealthy individuals, the deal provides access to a new type of client, namely the pension funds, university endowments and charitable institutions that make up BlackRock’s core clientele and are increasingly turning to hedge funds to boost returns and diversify their portfolios away from equities.

BlackRock also has an expertise in risk management that institutional investors are increasingly demanding from funds of hedge funds.