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Portfolio > Alternative Investments > Hedge Funds

AMG Buys Stake in AQR Capital Management

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BOSTON (–Affiliated Managers Group has taken the hedge fund plunge and acquired an equity interest in hedge fund manager AQR Capital Management, Greenwich, Conn.

The price AMG paid was not disclosed, but an analyst at Prudential Equity Group was reported to estimate it at US$80 million to US$100 million, or 8 to 10 times earnings before interest, taxes, depreciation and amortization, or EBITDA. AQR, which manages long-only equity products in addition to hedge funds, has approximately US$12 billion in assets under management, of which US$6.5 billion is in hedge funds. AMG managed approximately US$121 billion in assets as of Sept. 30.

The transaction marks AMGs entry into hedge fund management.

AQR’s four founding principals–Clifford, S. Asness, David G. Kabiller, Robert J. Krail and John M. Liew–who will retain a majority equity position, have signed a 10-year employment agreement with AMG and will invest a “significant portion” of the proceeds from the transaction in AQR products, according to AMG.

In a press conference Monday, AMG Chairman and Chief Executive William J. Nutt said, “We are very pleased to partner with AQR,” and described the firm as “among the leaders in quantitative investing with a deep and talented management team.”

The AQR partners “will continue to run the business,” said Sean M. Healey, AMG’s president and chief operating officer.

Mr. Healey said one of the attractions of the deal was the assured flow of fees AMG receives. “We have extensive experience in structuring performance-fee products,” he said. He also said the transaction differs from AMG’s arrangement with some other affiliates in which AMG has an ongoing obligation to step up its investment. “We haven’t given AQR partners put options that would require AMG to buy further shares of the company,” Mr. Healey said.

The price AMG paid “is consistent with our historical pricing disciplines,” said Seth M. Brennan, AMG executive vice president. He said it consists of an initial cash payment, with contingency-based payments to be made over coming years.

Of the size of the deal, Mr. Healey said, “It’s important to understand that $6.5 billion is large, but it’s a level where we think there will be substantial growth.”

Among the strengths AMG sees in AQR, he said, are its use of 17 strategies in applying value and momentum factors across a broad spectrum of asset classes and over a range of volatility. AQR “also has a track record of successful new products,” Mr. Brennan said.

Mr. Healey, while praising the performance of AQR’s hedge fund–he said it has returned 28% year to date–said AMG is comfortable with AQR’s long-only portfolio, noting that it mostly consists of international equities.

“AQR is among the largest and most highly regarded quantitative managers of both hedge funds and long-only products,” he said in a statement, “with a broad and diverse set of products and an excellent long-term performance record. Our partnership increases and diversifies AMG’s participation in the alternative market with an investment in a proven high-quality quantitative and research-driven investment manager with a premier group of products.”

Contact Bob Keane with questions or comments at: [email protected].


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