LONDON Swiss private bank Reyl Group is considering options such as a merger or acquisition for its fund of hedge funds unit, the latest firm to look at asset-boosting deals to help it bulk up and attract cash from nervy clients.
Fabrizio Ladi Bucciolini, head of alternative investment at Reyl Asset Management, told Reuters the group's fund of funds business, which manages around $130 million, had found it hard to attract investors and was looking at various options to grow.
His plans highlight the problems faced by small hedge fund firms in attracting investors scarred by losses during the credit crisis, and nervous about who they give their money to after U.S. financier Bernard Madoff's fraud and other scams.
An industry in which M&A is made more difficult by star managers' reluctance to yield control of their own businesses has nevertheless seen some smaller players accept deals.
Last year fund of funds firm Altedge was bought by Cheyne Capital while the founders of Pendragon joined GLG Partners GLG.N, taking their event-driven fund with them. This year the founder and partner of Tisbury Capital also moved to GLG.
And even Man Group (EMG.L), the world's largest listed hedge fund, took action to boost assets and reduce reliance on 'black box' fund AHL, buying GLG in a $1.6 billion deal this year.
"Raising new money for new entrants is proving very challenging, and assets are mostly going to the bigger groups, so now, in what is a recent development, we're beginning to explore the market," Bucciolini said in an interview this week.
"We appreciate that we're not going to grow the fund of funds business rapidly on our own, so we're considering different solutions, amongst which (is) a strategic venture with a complementary partner."
Conditions that hedge funds now face are a far cry from the industry's boom days before the credit crisis, when the proverbial 'two traders with a terminal' could set up a new hedge fund in London's Mayfair district and attract interest far more easily.
Reyl's plan also highlights the particular problems facing the fund of hedge funds industry, which came under fire for stopping clients getting their money during the crisis and after some high-profile funds invested with Madoff.
"The world is full of small funds of funds that are slowly drifting away," said Bucciolini.
Investors pulled almost $14 billion from funds of hedge funds during the first six months of this year, according to Hedge Fund Research, whereas the hedge fund industry as a whole saw inflows during that period.
Bucciolini said the firm had looked at buying rivals but said many firms, in an industry often dominated by star managers, were asking too high a price.
"We wouldn't sell but we would consider acquisitions, although people's expectations are unrealistic in terms of the valuation of businesses," he said.
He declined to give further details of the options Reyl is looking at.
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