IAM Sees More Funds of Funds Consolidation

LONDON (HedgeWorld.com)--Consolidation in the funds of funds sector has much further to go as providers scramble to build scale and attract interest from investment banks, according to one Europe-wide funds of funds provider.

"We are persuaded that the fund of funds industry is too fragmented," said Emanuel Arbib, chief executive of Integrated Asset Management (IAM). "You are going to see banks getting involved: the ABN Amros, the JP Morgans?? 1/2 ."

In May, IAM went beyond a three-year role as an Italian broker to Sal. Oppenheim, Germany's largest private bank, when it acquired a 50.1% interest in Attica Holdings, a London-based fund of funds operator. Sal. Oppenheim kept the remaining 49.9% stake in Attica and took a 27% interest in IAM as consideration for the stake sale.

IAM has a three-year preferred funds of funds provider agreement with Sal. Oppenheim and an option for a further three years. It also has a call option to buy out the German private bank's remaining interest in Attica for a consideration of between 5 million to 8 million euro (US$6.3 million to $10.2 million), dependent on earnings and assets under management.

"The demands of hedge fund clients are beyond the means of many managers to provide," Mr. Arbib said. "Costs are going higher and there is long-term fee compression. If Attica and ourselves can merge to save ?? 1/2 1 million annually ($1.8 million) it makes sense for other managers to come together."

IAM's offices, in an elegant Mayfair townhouse on Hill Street just off Berkeley Square in central London, resounded recently with the ring of building work in preparation for the arrival of seven new colleagues from Attica. The integration of the two firms is expected by the end of September, following formal approval from the U.K. Financial Services Authority and German Cartel Office this summer.

The combined business now has assets under management of $1.4 billion--double IAM's assets before the link-up. Since the deal, Mr. Arbib said three new institutional clients had invested, including two from Germany, bringing in about $150 million. He said he believes the new group is well positioned to attract more money from institutions in the United Kingdom, southern Europe, Germany, Austria and Switzerland.

"We haven't had any fund raising issues," Mr. Arbib said, commenting on reports of hedge funds having difficulty gaining new assets. "We are reasonably positive for the second half."

On markets, Mr Arbib said: "M&A activity will help the market anytime it goes down too much. Much money has been amassed on balance sheets and in buyout funds. That will provide a buffer for the market if it goes down too much."

The enlarged IAM, which operates the GAIM Advisers fund of funds brand, will comprise two low-volatility funds; three medium-volatility funds; and two high-volatility funds spread out over 15 mandates. "We are looking to see if it is legally feasible to put some of them together," Mr. Arbib said.

In the funds of funds, the three main strategies are long/short equity (40% of allocations), global macro (20%) and event-driven (20%). There also are smaller allocations to convertible arbitrage managers and managed futures funds.

After rising 11% on the day of the formal link-up with Sal. Oppenheim and Attica, IAM's stock price has continued to advance, outperforming both the quoted hedge fund sector and the overall market. Its shares closed down 0.5 pence on July 13 at 75.5p, just 0.5p below its all-time high, valuing the firm at ?? 1/2 13 million.

BMcIntosh@HedgeWorld.com

Contact Bob Keane with questions or comments at bkeane@investmentadvisor.com.

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