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BlackRock to acquire USD1.7bn fund of funds business from Quellos Group

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US asset manager BlackRock, which earlier this month announced plans to invest in alternative managers, has agreed to acquire the fund of funds business of Quellos Group for up to USD1.7bn

US asset manager BlackRock, which earlier this month announced plans to invest in alternative managers, has agreed to acquire the fund of funds business of Quellos Group for up to USD1.7bn, creating one of the largest fund of funds platforms in the world with more than USD25.4bn in assets under management.

Quellos, which manages hedge, private equity and real estate funds of funds as well as specialty and hybrid offerings on behalf of institutional and individual investors, will receive USD562m in cash and USD188m in BlackRock common stock upon closing of the transaction.

In addition, Quellos may receive up to an additional USD970m in cash and stock over three and a half years on an earn-out basis, dependent upon the business meeting performance standards. A substantial portion of after-tax cash proceeds will be reinvested for 10 years in products managed by the fund of funds investment professionals.

Says BlackRock chairman and chief executive Laurence D. Fink: ‘We have worked with Quellos for a number of years as a sub-advisor for their clients. We have long admired the discipline with which they have built and continue to operate their alternative investment business.

‘Following closing, we will combine our hedge and private equity fund of funds activities on a unified platform. This will bring together a strong line-up of complementary products and talented and experienced professionals who share a commitment to disciplined investment processes using extensive risk management capabilities. The teams also share a client-centric culture that reflects their passion for investment and operational excellence.

‘In the face of challenging market and business conditions, our clients around the globe are pursuing a wider array of investments and strategies, including absolute return products, portable alpha and liability-driven investing. Fund of funds are being more widely used in these strategies, and the combined expertise of BlackRock and Quellos will enhance our ability to deliver innovative solutions to our clients worldwide.’

Quellos chief executive Jeffrey Greenstein will retire upon closing of the deal and has agreed to act as an advisor to BlackRock to assist in the transition. Bryan White, Quellos’s chief investment officer, will become global head of the combined fund of funds platform, which will be rebranded BlackRock Alternative Advisors.

No changes are expected to the investment strategy or style of existing offerings, which will continue to be managed by members of their existing portfolio management teams. The fund of hedge funds business will be integrated, benefiting from the enhanced research, technology, risk management and operational capabilities of the broader business. Howard Berkowitz will continue to head investment strategy for BlackRock’s existing funds of hedge funds and chair the investment strategy forum for the combined absolute return business.

BlackRock says each team will continue to manage their products in their respective styles. Russ Steenberg will continue to head BlackRock’s private equity fund of funds business, which invests in primary funds, secondary funds and direct co-investment opportunities through core funds of funds, direct co-investment programs and other offerings. Gene McDonald will continue to lead the Quellos private equity fund of funds team, which manages both private equity and real estate funds of funds with an emphasis on growth-oriented and venture capital managers.

‘As co-founder of Quellos, I am incredibly proud of the accomplishments of our team and the confidence our clients have shown in us,’ Greenstein says. ‘We are convinced that partnering with one of the world’s leading asset managers will afford significant strategic benefits for our clients and great opportunities for our employees. I look forward to ensuring a seamless transition for all of our clients and employees.’

Adds White: ‘The decision to join forces with BlackRock was straightforward. We share a commitment to risk management and disciplined investment processes, sophisticated investment technology, a solutions-oriented approach to working with clients, and a culture of innovation and excellence. We look forward to leveraging our capabilities and BlackRock’s global reach to better serve investors throughout the world.’

BlackRock’s acquisition of the Quellos fund of funds business is expected to close by October 1, subject to regulatory approval. BlackRock was advised on the transaction by Citi and Skadden Arps, while Quellos was advised by UBS and Paul, Weiss.

BlackRock is one of the world’s largest publicly traded investment management firms with USD1.15trn in assets under management at the end of March in a variety of equity, fixed income, cash management and alternative investment products, as well as offering investment, risk management and financial advisory services to institutional investors. Headquartered in New York City, the firm has around 5,000 employees in 18 countries and a major presence in key markets such as the US, Europe, Asia, Australia and the Middle East.

Quellos managed more than USD20bn of assets in alternative investment products at the end of March for clients including public and private pension plans, foundations, endowments, official institutions, financial institutions and high net worth investors. Quellos, which was founded by Greenstein and White in 1994, has more than 290 employees at its headquarters in Seattle, New York, Durham, North Carolina, London and Hong Kong.

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