Highbridge’s Latest Strike in the Assets Under Management War

Highbridge takeover of Brazilian hedge fund firm Gávea Investimentos is another shot in an AUM arms race.


Highbridge Capital Management’s deal to buy a majority interest in the $6 billion Brazilian hedge fund firm Gávea Investimentos gives the world’s second largest hedge fund firm more than $47 billion in assets under management, moving it much closer to number one Bridgewater Associates, which had $50 billion at the end of June.

More importantly, the deal is yet another stark reminder that the hedge fund business is engaged in a good ol’ fashioned arms race, with the weapon of choice being AUM.

Many firms realize that size is critical to future success. This means being able to offer investors—increasingly institutions -- a wide array of products. Highbridge co-founder Glenn Dubin more than hinted at this in the press release, asserting that the acquisition of Gávea co-founded in 2003 by Arminio Fraga, who had earlier spent six years with Soros fund Management, “will provide Highbridge with greater macroeconomic insight and direct exposure to investing in Brazil, which will be a powerful addition to our investment capabilities.”

MAN Group and GLG Partner, which recently merged into one massive firm with around $63 billion, including long-only funds, also stressed the advantages of offering a wide number of offerings when they initially announced their agreement to merge earlier this year. Other large hedge fund transactions this year: TPG-Axon, which manages about $9 billion, agreed to merge with UK-based Montrica Investment Management, which manages about $1.1 billion; while Credit Suisse Group plunked down $425 million for a 30 percent stake in York Capital Management, which had about $11.5 billion at the midway point.

Meanwhile, buyout king Kohlberg Kravis Roberts is about to sign on nine proprietary traders from Goldman Sachs Group to create a hedge fund unit. It reportedly beat out Perella Weinberg Partner LP and hedge fund Avenue Capital Group, the $18 billion firm founded by Marc Lasry and his sister Sonia.

This deal is related to the big-is-better trend. Remember, I earlier reported that during the first half of 2010, nearly all of the $23 billion of new investor capital went to firms with greater than $5 billion in assets under management, according to HFR. These firms currently control about 60 percent of all hedge fund industry capital.


At the same time that hedge funds are merging, a growing number are creating Seeding operations, inspired no doubt by Julian Robertson’s stable of some 40 Seed funds, of which he personally owns 25 percent.

Among those looking to greatly expand their Seeding operations: Ken Griffin’s Citadel and Blackstone Group. According to marketwatch.com, Blackstone is trying to raise as much as $1.5 billion to seed 10 to 15 new hedge-fund firms.

Meanwhile, some large firms continue to seek more capital. Och-Ziff has been fund-raising this year, lifting total assets through October to $26.3 billion from $23.5 billion at year-end. At the end of the June, it was the third largest hedge fund firm in the US, up 22 percent from the comparable period the prior year.

This makes it crowded at the bottom for the small, fledgling manager who wants to be a big hedge firm. Small wonder more and more of them—especially those without a track record—are finding the Seeding platforms quite attractive.