--Will acquire BNP Paribas' Fauchier for undisclosed amount
--Deal is latest in consolidating fund-of-hedge-funds industry
--Comes as money manager says it will take up to $750 million writedown this quarter
(Adds executive comments in nineth and 10th paragraphs, details throughout.)
By Mia Lamar
Legg Mason Inc. (LM) agreed to acquire BNP Paribas SA's (BNPQY, BNP.FR) Fauchier Partners, the latest deal in the fast-shrinking fund-of-hedge-funds industry.
The Baltimore money manager plans to combine Fauchier with its affiliate Permal Group, another large fund-of-hedge-funds firm whose purchase in 2005 marked Legg Mason's first foray into alternative investing.
Fauchier will bring roughly $6 billion in client assets to Permal, which has been hit with outflows of investor cash like many of its peers. Permal had $18.3 billion in assets under management through March, the end of Legg's latest fiscal year.
Legg Mason also Thursday said it would take a non-cash writedown of up to $750 million this quarter, tied in part to a resetting of expectations for Permal.
"What we've learned is that scale is important to investors in this space," said Mary Athridge, a spokeswoman for Legg Mason. "This deal gives that to them."
Fund-of-hedge-funds--which invest in other firms' hedge funds--have recorded a substantial decline in assets since the financial crisis, when many were hit by poor performance. In the third quarter alone, such funds shed $4.4 billion, the sixth straight quarter of outflows, according to Chicago-based Hedge Fund Research. By comparison, the industry as a whole added $80 billion.
Another data provider, eVestment, said fund-of-hedge-funds assets as a percent of overall hedge-fund assets fell to a record low 34% at the end of September, as investors have grown increasingly comfortable with allocating directly to hedge funds.
Now, the $630 billion industry is undergoing a swift consolidation. KKR & Co. LP (KKR) in June agreed to pay an undisclosed amount for Prisma Capital Partners LP--founded by a group of former Goldman Sachs Group Inc. (GS) partners--while fellow money manager Franklin Resources Inc. (BEN) this fall picked up a majority stake in fund-of-hedge-funds firm K2 Advisors.
In an interview with Dow Jones Newswires, Permal Chief Executive Isaac Souede said the company began evaluating an acquisition of Fauchier this summer. Legg Mason and Permal declined to provide terms of the deal, but Mr. Souede said the sale was undertaken through an auction process that saw it emerge as the highest bidder.
"We've looked at many things over the past few years but nothing that had a talent pool and the institutional process that this firm has," Mr. Souede said.
BNP Paribas also declined to give details of the transaction.
Macrae Sykes, an analyst at Gabelli & Co., called the Fauchier acquisition a "small positive" for Legg Mason, noting it will give a boost to fee rates but is a small addition relative to Legg's roughly $650 billion in client assets.
The money manager has struggled for years with poor fund performance and customer redemptions, hurting profits and angering investors. Former Chief Executive Mark Fetting stepped down Oct. 1 after the company yielded to calls for a turnaround from activist hedge fund Trian Fund Management LP, Legg Mason's second-largest shareholder.
Separately Thursday, Legg Mason said it will move its quarterly dividend payment of 11 cents a share to Dec. 28, joining a slew of companies that have been moving up such payments to help their shareholders get ahead of potential tax increases next year.
--Saabira Chaudhuri and Amy Or in New York and Noemie Bisserbe in Paris contributed to this article.
Write to Mia Lamar at [email protected]
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