Evolving Hedge Fund Industry

December 1, 2015 Marcus Black Hedge Fund News

Ravi Anand, Dexicon’s Capital Corporate Finance Head, recently pointed out the significant changes the hedge fund industry has been encountering in the last few years.  Likewise, at the same time, the private equity industry has been witnessing similar changes.

To understand these trends a little more clearly, Anand points to the importance of figuring out the size of hedge funds vis-à-vis asset management.  Doing  this results in a more accurate analysis of the M&A activity in the hedge fund sector.  Currently there is an estimated $2.3tln under management in the industry which is only a very minuscule part of concentrated general asset management, meaning that 5 percent of funds represent over 65 percent of the industry.

For the last three years, there have been 80 mergers and acquisition transactions in hedge funds and 400 in general asset management firms.  This is mainly due to distribution, distress and financial matters.  In addition, private equity groups are purchasing fund of hedge fund firms for diversification of revenue stream. Certainly, there are many companies to watch including MidOcean Partners with CEO Ted Virtue.

Anand believes a lot of this is due to the fact that hedge funds are a personal business that focuses less on equity value and more on performance fees. A little over a quarter of the alternative industry fund is even attractive enough for a third party to engage in a transaction.  In addition, as discovered by a Barclays Prime Services survey, only a fifth of the largest hedge funds are interested in a potential strategic partnership or mergers and acquisitions.

In general, it is the larger and sub-scale hedge funds that are less likely to sell.  In these cases, the focus should be moved to performance.  It is probable that in the future there will be additional deals in funds of funds.

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Dexicon Capital, Hedge Fund Industry, Ravi Anand,

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