A SURE SIGN that an industry has matured is when the pioneers begin to sell up. Is that what's happening after a period of explosive growth to hedge funds? Earlier this week, Man Group, the quoted hedge fund group, reported a wobble in what until now had been a stellar growth performance, while yesterday it emerged that the partners of GLG are negotiating to sell their hedge fund back to Lehman Brothers in a deal that may be worth hundreds of millions of pounds each to the founding executives.
The managing directors Noam Gottesman, Pierre Lagrange and Philippe Jabre are in preliminary talks with their former employer to sell the fund, which industry sources value at between $1.5bn and $2bn. The move comes after JP Morgan Chase agreed to buy a majority stake in another large hedge fund earlier this week, reflecting the growing interest of Wall Street firms in hedge funds and other alternative investments.
"These are extremely preliminary talks," a person familiar with the discussions said, adding that it could be months before any deal is announced.
GLG Partners, based in London, has at least $10bn in assets under management. The hedge fund was set up within Lehman in 1995 by Mr Gottesmann, Mr Lagrange and Jonathan Green, who has since left. They bought the fund from the bank in 2000 but Lehman retained a 20 per cent stake. The trio previously worked at Goldman Sachs, where they managed money for wealthy individuals. Mr Gottesmann is thought to rent a house in Eaton Square, Belgravia, for pounds 20,000 a week after selling his own house in Kensington for pounds 20m.
Crispin Odey, of Odey Asset Management, said: "Some people say that the growth rate for hedge funds is slowing down and that now is a sensible time to sell."
Hedge funds, investment pools which have long catered to wealthy individuals and institutions, are becoming increasingly attractive to the big investment banks, looking for new ways of boosting earnings as income from mergers and acquisitions and initial public offerings stagnates. For their part, institutional investors such as pension funds, seeking better returns, are increasingly turning to hedge funds and other alternative investments. Hedge funds offer both high fees and the potential of big investment gains.
On Tuesday, JP Morgan, America's second-biggest bank, agreed to buy a majority stake in Highbridge Capital Management, which has $7bn in assets, in a deal thought to be worth about $1bn. Details were not disclosed, but a JP Morgan spokeswoman said the price was tied to future investment performance. While JP Morgan already has about $12bn of hedge fund assets, the deal reflects its desire to gain a larger foothold in what has been the fastest-growing area of the asset management world in the last few years. Other Wall Street firms including Goldman and Citigroup are also big players in the field.
Faced with mounting competition, hedge funds are also becoming keener to link up with larger banks to gain access to a wider pool of clients. The hedge fund industry is now worth between $800bn and $1tn, with the number of funds quadrupling to 7,000 in the past decade.
A Lehman deal with GLG would be "a good fit", an industry source said. …