MarketWatch – On Tuesday, Schroders PLC (SDR.LN) agreed to pay $101 million for London-based NewFinance Capital, which has $2.5 billion in fund-of-hedge-fund assets under management. A further $41 million will be paid out if the unit meets certain revenue targets over four years.
At least seven similar deals have been struck since 2005 as private banks and asset managers expand their range of alternative investment products to keep up with demand from clients, particularly institutional investors such as pension funds and corporations.
Funds of hedge funds – which research, select and monitor hedge-fund managers to create diversified portfolios of hedge funds – are usually the first stop for these types of clients interested in hedge funds.
“We see the (funds-of-hedge-funds) business moving away from high-net worth individuals to mainstream institutional clients,” said Michael Dobson, chief executive officer at Schroders. “It’s a growth business that fits well with our own products and creates a $3.2 billion business,” he said.
According to research from French business school Edhec, more than half of surveyed institutional investors in Europe invest in hedge funds, with an average allocation of 7% of overall assets.
Like Schroders, many of the banks and asset managers involved in the recent deals have added to an existing and much smaller funds-of-hedge-funds business.
