By Rob Copeland
British insurance giant Aviva PLC will shutter a U.S.-based
hedge-fund arm by the end of the year, according to people familiar
with the matter.
The decision to close the unit, a so-called fund of hedge funds
that invests money across a range of external managers, was made
after a major client asked for its money back, one of the people
said. The Aviva unit had roughly $2 billion under management, said
people familiar with the matter, and boasted relationships with
some of the most high-profile firms in the industry.
"Following a comprehensive review of the business, we have
decided to exit the business of investing in third-party hedge
funds," an Aviva spokesman said in a statement in response to
questions from The Wall Street Journal. "We are working with our
affiliates and the underlying hedge fund managers on an orderly
transition plan."
The fund-of-funds industry has been in a pinch since the
financial crisis, when a combination of market losses and investor
panic stemming from money manager Bernard Madoff's Ponzi scheme
hurt firms that pool money from clients and invest in hedge
funds.
In total, funds of funds worldwide oversee $762 billion, down
from $1.16 trillion at their peak in 2008, according to researcher
HedgeFund Intelligence.
To adapt, some of Aviva's competitors have sold themselves to
bigger players like the Man Group PLC., the world's largest
publicly traded hedge-fund firm. Others reinvented themselves as
specialists in discovering new talent in small hedge-fund managers,
or as experts in particular strategies.
Aviva occupied a middle ground. Its underlying managers have
included activist firms Corvex Management LP and Pershing Square
Capital Management LP, as well as macro shop Discovery Capital
Management LLC, people familiar with the matter said.
Those hedge funds will likely have to pay back Aviva's money by
the end of the year, which could require them to sell off assets if
they don't have the cash on hand or sufficient fundraising coming
in to offset the redemption.
The closing of the fund-of-funds unit isn't believed to be
related to Aviva's pending multibillion-dollar takeover of Friends
Life Group Ltd to create the largest insurance, savings and
asset-management company in the U.K.
Aviva's London-listed shares are down 6% this week after it
announced the acquisition.
Aviva, which provides general insurance, life insurance and
pensions, has said the combined group would be "better positioned
to take advantage of the evolving U.K. life insurance market with
greater capacity to invest and innovate."
Write to Rob Copeland at rob.copeland@wsj.com
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