MCP Asset Management Co., a Hong Kong-based fund of hedge funds firm with $5 billion in assets, will seek mergers and acquisitions abroad after it bought the local unit of Sparx Group Co.
MCP is in discussions with several asset-management firms in the U.S. and Europe, such as those that have retreated from Asia amid the global financial crisis, said Tetsuo Ochi, the chief executive officer of the firm. He declined to elaborate, saying the talks are private.
Founded in 2000 by Ochi, a former managing director at Credit Suisse First Boston in Tokyo, MCP agreed to buy Sparx International (Hong Kong) Ltd. this week to expand offerings in Asia. Funds of hedge funds have been seeking partners as they recover from the financial crisis that sent global hedge funds to record losses in 2008 and as Bernard Madoff’s $65 billion Ponzi scheme scared investors away from investing with them.
“We’ve seen the fund of hedge fund industry consolidate since the financial crisis and as the world’s economic gravity shifts from the west to Asia we want to strengthen our foothold here,” Ochi said in an interview in Tokyo yesterday. “We will continue to seek opportunities for mergers and acquisitions or alliances that make sense to us.”
Investors use funds of funds to spread their money across a variety of holdings, relying on managers to investigate individual funds. Funds of hedge funds trailed the recovery in the broader market last year.
Singapore-based Eurekahedge Pte’s fund of funds index gained 9.5 percent last year, compared with a 19 percent jump in the global hedge fund index. The Eurekahedge Fund of Funds Index has declined 0.5 percent so far this year, compared with a 2 percent gain by the global benchmark.
MCP’s clients consist of institutional investors including insurers and financial firms, said Ochi. By acquiring Tokyo- based Sparx’s Hong Kong unit that offers funds of hedge funds with a focus on Asia, MCP aims to widen the scope of investments in the region, Ochi said.
The MCP Composite Index, which tracks the performances of funds catering to each client, has posted an annualized return of 4.6 percent from March 2002 through July this year, according to the firm. The gain compares with a 3.8 percent annualized return in the Chicago-based Hedge Fund Research Inc.’s Fund of Funds Composite Index.
The sale of the Sparx unit was part of an alliance formed with MCP, and rounds off the Japanese firm’s effort to reduce costs and focus more on a single-manager strategy, Masaki Taniguchi, president of Sparx Asset Management Co., said in the same interview. Sparx Asset is the asset-management unit of Sparx Group, Asia’s second-biggest hedge fund.
Sparx last year allied with Novato, California-based Hennessy Advisors Inc. to sell its funds in the U.S. after closing its business there except for mutual funds. Earlier, Sparx had closed its U.K. office.
“The latest Hong Kong unit sale effectively means a complete retreat by Sparx from its own business units abroad,” Taniguchi said. “This will allow us to integrate the remaining businesses we have faster to become the biggest and strongest asset-management firm in Asia.”
Sparx aims to focus more on its remaining units in Asia, Hong Kong-based PMA Capital Management Ltd. and South Korea’s Cosmo Investment Management Co., to offer funds in the region, Taniguchi said.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.