By Juliet Chung
The family office of Google Inc.'s Eric Schmidt bought a 20%
stake in New York hedge-fund firm D.E. Shaw Group from the estate
of Lehman Brothers Holdings Inc., the parties said Thursday.
It sold for roughly $500 million, a discount from the price of
at least $750 million to $800 million Lehman paid, according to
people familiar with the matter. Lehman, a securities firm, bought
the stake in 2007 and collapsed in September 2008 during the height
of the last financial crisis.
The lower price partially reflects the restrictive terms of the
deal Lehman originally negotiated that the new owner was expected
to assume, according to people familiar with the matter.
Lehman's 2007 deal with D.E. Shaw was part of a wave of
precrisis deals from banks looking to buy their way into the
hedge-fund business. Since then, banks have pulled back from the
business partly because of regulatory pressures. Investment groups
have stepped into the void, raising billions of dollars or using
their own balance sheets to buy stakes.
Mr. Schmidt's family office, Hillspire LLC, began discussing a
potential purchase of the stake about a year ago. Hillspire is run
by former Treasury official and hedge fund executive Chuck Chai,
and manages more than $5 billion of Mr. Schmidt's and his family's
wealth. It has been a D.E. Shaw investor for at least five years,
according to a person familiar with the matter.
The stake is passive, meaning Hillspire will share in the
roughly $36 billion firm's profits but won't have any say in its
management. The return for D.E. Shaw across its funds this year was
8.4% through March, according to a person familiar with the
matter.
"As a long-standing investor in the D.E. Shaw group's funds, I
have the highest regard for their team and the firm that they've
built," Mr. Schmidt said in a statement Thursday.
The deal was partly attractive to D.E. Shaw because Hillspire is
viewed as a longer-term investor, and doesn't have the regulatory
disclosure requirements that public companies do. Meanwhile, the
stake, which has been a profitable investment for the Lehman
estate, is expected to generate steady income for Hillspire.
The Lehman estate had been looking to sell its D.E. Shaw stake
since late 2013, but the passive role that Lehman had originally
negotiated, among other restrictions, diminished the interest of
some prospective buyers, according to people familiar with the
matter.
The drawn-out sales process, run by Goldman Sachs Group Inc.,
showed the complexities that can arise when a stake is being resold
rather than negotiated directly between a hedge fund and a buyer,
said people familiar with the matter.
Firms that looked at buying the stake included Blackstone Group
LP, KKR & Co., Neuberger Bergman's Dyal Capital Partners, The
Wall Street Journal previously reported.
Affiliated Managers Group Inc. had been close to buying the
stake but those talks stalled last year as AMG sought to change the
terms.
Write to Juliet Chung at juliet.chung@wsj.com
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