The fund of hedge funds industry has been consolidating over recent years, and this activity has continued into 2017. In the first week of February, PAAMCO and KKR Prisma announced that they had agreed plans to merge, with the deal set to complete in Q2 2017. The new entity, PAAMCO Prisma, will have around $30bn in total assets under management (AUM) and is expected to become one of the largest managers globally. PAAMCO Prisma is expected to bring added scale benefits to investors and offer them easy access to a broader range of investment solutions.
A previous blog looked at the need for the fund of hedge funds industry to adapt and “reinvent” itself in a bid to meet the demands of institutional investors and justify its fees. This latest high-profile merger appears to offer further evidence that a move away from traditional commingled product offerings towards more customized solutions is becoming the norm.
As with the PAAMCO Prisma merger, a move towards providing a more customized service to clients was the principal factor behind Legg Mason’s Permal Group merging its hedge fund platform with EnTrust Capital in Q2 2016. The merger resulted in the combined entity, EnTrustPermal, expanding its managed account platform, and in doing so, is able to offer further bespoke customized solutions and co-investment opportunities to clients. In Q1 2017, the firm announced that the CEO of Marco Consulting, Jason Zenk, was set to join EnTrustPermal in order to build a team to assist its clients in hedge fund portfolio construction. According to the press release, the firm is increasingly focusing on creating individualized investment portfolios in response to demand from its largely institutional client base.
Another reason for consolidation within the industry comes from the desire for firms to offer greater access to a wider range of geographies and strategies. In 2015, Aberdeen Asset Management completed its acquisition of Arden Asset Management and sought to extend its presence in the US with its acquisition, as well as to provide investors with further access to US-domiciled products and investment professionals to enhance its platform. Upon completion of the merger, Aberdeen became the investment adviser to two key Arden Asset Management investment funds and created a new series under the name, Aberdeen Multi-Manager Alternative Strategies.
Also in 2015, Titan Advisors previously had a long history of investing in managers that employed liquid long/short equity and macro/CTA investment strategies. Its acquisition of Saguenay Strathmore Capital, a manager with a primary focus on credit-related strategies, was intended to expand its existing manager exposure. Indeed, on the back of the merger, Titan launched Titan Legacy Credit Opportunities Fund as it looked to diversify its offering into the credit sector.
There has been an ongoing trend of mergers and acquisitions within the fund of hedge funds industry over recent years and it looks likely to continue in 2017. Institutional investors will be hoping that this ultimately results in a more streamlined industry that will be better placed to serve their individual requirements.