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The Best Way to Make Money Off Cliff Asness? Buy Cliff Asness

A firm that takes equity stakes in hedge fund firms has made its first deal, joining some well-known firms that have found success buying into these businesses.

  • Imogen Rose-Smith

While hedge funds have been under fire in recent years for high fees and lackluster performance, investing in the firms that manage them has remained a popular strategy.

One such firm, New York-based White Oak Equity Partners, struck its first deal at the end of last month, taking a 20 percent equity stake in quantitative global macro hedge fund firm ROW Asset Management. Co-founded in 2016 by Bruce Wilson, a former COO of Dan Loeb’s hedge fund firm Third Point, and Jeffery Walsh, a former principal with early private equity and leveraged buyout pioneer Wesray Capital Corporation, White Oak is seeking to make equity investments in hedge fund firms with between $200 million and $2 billion in assets under management.

In doing so it joins the ranks of Dyal Capital Partners, Goldman Sachs Asset Management, and Blackstone Group, all of which have taken stakes in hedge fund managers. Both GSAM and Blackstone have launched hedge fund investment funds in recent years, while Dyal, a subsidiary of asset manager Neuberger Berman, has made a business out of investing in asset management firms, hedge funds included.

White Oak was launched with the backing of an unnamed family office as well as capital from its founding partners. A spokesperson for White Oak declined to comment.

At a time when a number of institutional investors are questioning the value of investing in hedge fund strategies, industry sources say that taking a general partner stake in a hedge fund manager continues to be an attractive option — for the right firm. ROW is an $800 million quantitative manager with offices in New York and California. While fundamental long-short equity mangers are having a tough time generating alpha these days, quantitative hedge fund firms are enjoying good performance and are seeing a corresponding growth in assets under management, making them an attractive option for would-be GP investors. 

One of the best known, and most successful, stakes in an alternative investment firm is Affiliated Management Group’s position in AQR, the Greenwich, Connecticut-based alternative investment firm founded in 1998 by Cliff Asness and a group of his Goldman Sachs Asset Management colleges. AQR offers a variety of different fund structures, which charge different fee levels depending on the level of alpha generated by the fund. The Beverley, Massachusetts-based AMG originally bought into AQR in 2004, upping its minority position in 2014 (the size of the stake has not been disclosed). In a March, 31 2017 regulatory filing, AQR reported a pre-tax 2016 profit of $531.1 million, for a profit margin of 56 percent. AQR was responsible for more than 20 percent of AMG’s pre-tax 2016 income. The quantitative firm has $187.6 billion in assets under management in both hedge fund and long-only strategies.

With the founders of many asset management firms now moving close to retirement age, and firms seeking ways to share equity with junior partners, taking a GP stake is seen as an efficient way to free up capital, particularly as going public is not a guaranteed route to success. Some hedge fund firms that have gone public, among them Och-Ziff Capital Management Group and Fortress Investment Group, have struggled as publicly traded companies. Fortress is in the process of being taken private again after being acquired by the Japanese conglomerate SoftBank Group, while Och-Ziff’s share price has declined 67 percent over the past five years.