Fund manager unit sales and mergers seen rising in '09

By Joseph A. Giannone

NEW YORK (Reuters) - The brutal market conditions of 2008 are expected to yield a bumper crop of asset management company deals this year, including mergers among hard-hit fund managers and more private-equity buyouts, investment bankers at Jefferies Putnam Lovell said on Monday.

After more than 20 years of snapping up money managers, commercial banks and insurers are expected to put their investment divisions on the block to raise cash and simplify. Meanwhile, hedge fund firms battered by volatile markets and redemptions are seen combining forces.

"The most active buyers over the past decade, namely commercial and investment banks and insurance companies, are now becoming sellers," said Aaron Dorr, a New York-based investment banker at Jefferies Putnam Lovell, a unit of Jefferies Group.

Dorr, in a brief phone interview, said one example of this trend is struggling insurer American International Group, which is expected to put many of its investment businesses on the block to raise much needed cash.

More banks and insurers are also considering strategic partnerships for their money management units, Dorr said.

Citigroup and Merrill Lynch in recent years exchanged their asset manager arms for businesses or shares in the expanded investment firm.

Dorr also expects hedge fund firm to consolidate, pooling capital and cutting costs after the industry's worst year in decades.

"The changes hedge funds are going through are enormous, in terms of the redemptions," Dorr said. "We expect to see survival-mode transactions."