Man Group to buy hedge fund rival FRM
Man Group is to acquire fund of hedge funds rival Financial Risk Management, boosting its assets by $8bn and turning the tables on critics who have said recently mediocre business flows left it open to hostile M&A.
FRM will be integrated into Man’s multi-manager business, run by Luke Ellis. The combined group’s multi-manager operations will almost double from $10.9bn now to $19bn, making it the largest multi-manager hedge fund group outside the US.
The deal is expected to close by September.
It involves payments made over three years, comprising at most $82.8m in cash paid from Man’s reserves, plus a 47.5% share of performance fees over three years from the funds FRM presently manages – as long as the group holds onto those assets in future – and capped at $60.8m.
Luke Ellis (pictured) will lead the group, under the FRM brand.
He is chief executive of Man Multi Manager, but was a senior manager at FRM over 10 years to 2008. Blaine Tomlinson, FRM’s founder, will become non-executive chairman of this business.
Man estimates $45m in cost savings from operational synergies, and double digit accretion to the combined group’s adjusted management fee earnings per share next year.
The deal follows a similar logic to Man’s acquisition of GLG Partners last year, when Man looked for complementary fund products, and skills. This time, it adds the institutionally-focused FRM to its own multi-manager business that caters to retail clients as well.
As the balance of power is increasingly evenly weighed between fund managers and their clients, Man also pointed to “increased bargaining power with an enhanced range of underlying managers” as another advantage of the deal.
Japan’s Sumitomo Mitsui Trust Bank Limited, which advises a significant portion of FRM’s investors and own 4.95% of the company, has agreed to a new, 10-year strategic relationship agreement with Man. SMTB will exchange its FRM stake for a minority holding of preference shares in RBH Holdings (Jersey) Limited, a Man subsidiary.
Peter Clarke, Man chief executive, said: “By combining the complementary investor bases of the two businesses and pairing FRM’s well-regarded investment process with Man’s managed accounts infrastructure, we can increase revenues with no material change to Man’s current cost base.”
Ellis said: “Our shared DNA, particularly across the investment process, will help us integrate rapidly and remain focussed on delivering strong returns for our investors. Institutional hedge fund investments continue to grow, and assets are concentrating with a limited number of scale winners.”
Tomlinson said: “The combination with Man is a unique opportunity to move our business forward without the usual level of integration risk for our investors.”