May 28 (Bloomberg) -- Blackstone Altius Advisors, the Hong Kong-based hedge fund manager set up this month by the world's largest buyout firm, plans to start its first fund in October with as much as $1 billion, three people briefed on the plan said.

Blackstone Group LP will initially invest $150 million in the fund, said the people, who declined to be identified because the information hasn't been publicly announced. The event-driven fund aims to raise $500 million to $1 billion, Blackstone Altius told potential investors. Peter Rose, a New York-based spokesman for its parent, declined to comment, citing regulatory reasons.

Blackstone is tapping new opportunities for investors willing to take riskier bets after the global credit contraction and stock market rout led to the worst start to a year in almost two decades for hedge funds. The new fund will seek returns from investing in Asian companies involved in mergers, acquisitions, bankruptcies and reorganizations.

``Many of the proprietary trading desks and banks are in virtual hibernation at the moment,'' said Peter Douglas, principal of Singapore-based hedge fund consulting firm GFIA Pte. ``So whatever deals are out there are seeing less competition.''

Hedge fund start-ups are seeking the backing of established houses such as Blackstone to help attract other investors as money flowing into the industry slows and large institutions such as pension funds and insurers dominate investments.

Myo Capital Advisers Ltd., the asset manager set up by former executives from ADM Capital and HSBC Holdings Plc, started a fund last month with an initial investment from Man Group Plc, the world's largest listed hedge fund manager.

Holding Cash

``If you go to a firm like Blackstone, you immediately have the brand equity, the name value of working for a tier-1 global firm, you also have all the resources of that firm at your disposal,'' said Ed Rogers, chief executive officer of Rogers Investment Advisors Y.K. in Tokyo.

Investors in hedge funds, which are mostly private, unregulated pools of capital, are holding an ``unprecedented'' amount of cash after markets declined because of the U.S. subprime collapse, according to a Deutsche Bank AG survey in March of money managers and pension plans with almost $1 trillion in hedge funds.

The funds attracted $16.5 billion of new cash in the first quarter, the smallest inflows since the end of 2005, as concerns about faltering economies damped investor enthusiasm. They declined an average of 3 percent in the three months, according to Chicago-based Hedge Fund Research Inc.

Event-Driven Funds

Event-driven funds accounted for 23 percent of global hedge fund assets at the end of March, and 8.5 percent of assets managed by Asia-focused funds, Hedge Fund Research said. The industry as a whole manages $1.9 trillion worldwide.

An index for Asian event-driven hedge funds dropped 3 percent in the first four months, less than the 5.7 percent decline in the overall Asian hedge fund index, according to preliminary figures from Singapore-based Eurekahedge.

Blackstone Altius will be led by Senior Managing Director Aaron Nieman, the New York-based parent company announced on May 13. In his previous stint as managing director of the Canvas Capital Management unit of SAC Capital Management, Nieman oversaw merger arbitrage and event-driven investments in the Asia-Pacific region.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net.

Last Updated: May 27, 2008 22:28 EDT