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Principal Agrees to Buy 55% Stake in Liongate Hedge Fund

Principal Financial Group Inc., the seller of life insurance and retirement products, agreed to buy a 55 percent stake in Liongate Capital Management LLP to expand in hedge funds and meet demand for alternative investments.

Liongate, with offices in London and New York, oversees about $2.1 billion for pension funds, insurers and sovereign-wealth funds, Principal said today in a statement. The deal may be completed in the second quarter and add to earnings in the first year, Principal said. Terms weren’t disclosed.

Principal has added asset managers as clients demand higher yields, Jim McCaughan, chief executive officer of Principal Global Investors LLC, said in a phone interview. Des Moines, Iowa-based Principal has been moving toward an investment management model, he said.

“We’ve been quietly building areas like alternatives and emerging markets, which is really where our client demand is shifting to,” McCaughan said.

Principal gained 1.1 percent to $31.89 at 4:10 p.m. in New York and has advanced about 16 percent in the past year.

The company bought a majority stake in hedge fund Finisterre Capital LLP in 2011 to expand in emerging markets, and agreed last year to buy Chile’s fourth-largest pension manager, AFP Cuprum SA. In 2005, Principal bought a controlling stake in Stamford, Connecticut-based hedge fund Columbus Circle Investors.

“The evolution of the business is very clearly toward fee-based business,” McCaughan said.

Liongate’s partners will continue to manage the firm and keep a 45 percent stake. The partners will reinvest “a significant share” of the proceeds into funds managed by the firm, according to the statement.

Sandler O’Neill & Partners LP advised Principal on the transaction and Fenchurch Advisory Partners Ltd. advised Liongate.

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