Hedge-fund investor Aurora Investment Management will return the $5.4 billion it oversees to clients over the coming months after a takeover of the firm collapsed, according to a letter to investors seen by Bloomberg News.
The move follows the termination of a deal last week under which the Chicago-based firm was to be sold to 50 South Capital Advisors by its parent company, Natixis Global Asset Management. Aurora was started more than 28 years ago by Roxanne Martino and invests in a selection of hedge funds.
“After considering a variety of strategic alternatives, we have decided that it is in the best interests of our investors to return the capital in our funds in a manner that will treat all investors fairly and equitably,” Aurora told clients in the letter sent April 22. Ted Meyer, a spokesman for Natixis, confirmed the contents of the letter.
The fund of hedge funds industry is shrinking as clients seek to cut fees to middlemen and instead invest directly. The number of firms operating globally declined to 1,616 at the end of March from 2,462 in 2007, according to Hedge Fund Research Inc. Assets under management decreased by $160 billion to $638.7 billion during the period.
“Allocations to the industry have declined and new strategies have evolved in the 28 years since Aurora was founded, which has made it more difficult to maintain the scale needed to best serve investors,” Meyer said.
Poor recent performances by hedge funds and the unraveling of Bernard L. Madoff’s Ponzi scheme in 2008, which dented the reputation of the fund-of-funds industry after many failed to protect clients from the fraud, have spurred a wave of consolidation and forced some firms to cut fees or close.
Carlyle Group LP said in February it will shut down hedge fund-of-funds manager Diversified Global Asset Management it bought in 2014. Liongate Capital Management said last year its board was taking steps to return client money following a decline in assets.
“The business model is broken,” said Jacob Schmidt, chief executive officer of Schmidt Research Partners Ltd. “There are not many fund of funds left out there who really operate successfully.”