Dyal Capital Takes Another Stake in Hedge Fund Industry

Neuberger Berman private equity fund buys equity stake in David Steinberg’s Mast Capital, its second hedge fund investment since launching late last year.


Dyal Capital Partners, a private equity fund managed by Neuberger Berman Group, has taken its second stake in a hedge fund management company. Dyal will hold a minority interest in Mast Capital Management in Boston, a $1.5 billion hedge fund firm that invests in credit-related strategies.

Dyal launched in late 2011 and took its first stake in December in Capital Fund Management, a $5.1 billion quant fund group based in Paris. The firm has not released the exact size of its positions in either deal but said in its announcements that it had taken minority positions. Dyal’s strategy is to buy equity in established hedge fund firms through secondary sales, according to persons familiar with the firm. Dyal acquired its share of Mast from Chris Madison, the firm’s retiring co-founder, and its CFM shares from the estate of CFM’s deceased founder, Jean-Pierre Aguilar. Unlike most private equity deals, Dyal does not go into partnerships with an exit strategy, but instead seeks permanent partnerships with hedge funds. As a partner, the private equity firm receives a share of fees and profits.

“We are excited to partner with Mast,” says Michael Rees, senior portfolio manager for Dyal Capital Partners. “We always look for situations where we can help a firm achieve a stable and well-aligned capital structure for the long term, and this is a great example of how we can be helpful.”

Dyal targets hedge funds with assets in the $1.5 billion to $7.8 billion range and has plans to provide dedicated teams to work with its hedge fund partners in various areas that might include trade order management systems, regulatory clearance and capital introduction. The firm plans to invest in approximately 12 hedge funds and has raised close to $1 billion for its investments.

Under the terms of the partnership, Mast will retain complete control over its management, operations and investment process, and will continue to be led by David Steinberg, the firm’s co-founder and chief investment officer, and the existing management team. Mast was founded in 2002. The firm’s flagship fund, Mast Credit Opportunities I, has grown from less than $10 million in assets in 2002 to approximately $500 million as of June 1, 2012. The fund returned 6.09 during the past 12 months, but this year it’s down 2.72 percent. According to estimates from the AR Composite index, credit funds on average returned 2.04 percent during the past 12 months and 4.13 percent year-to-date.