Aurora Redemptions Said to Have Derailed 50 South Takeover

  • Not enough of firm’s $5.4 billion client base planned to stay
  • Funds of funds thinning as industry struggles to add assets

The planned acquisition of Aurora Investment Management by 50 South Capital Advisors collapsed because Aurora clients had asked to pull money after the deal was announced, according to four people with knowledge of the matter.

The deal required that a certain percentage of its $5.4 billion in assets stay with the firm after the merger, said the people, who asked not to be identified because the information isn’t public. When that condition wasn’t met the deal was terminated, according to the people. The decision was mutually agreed upon by both parties, said John O’Connell, spokesman for Northern Trust Corp., of which 50 South is the $5 billion alternative-investment unit.

The failed merger eventually led Aurora to tell clients it would wind down and return all capital, to avoid that remaining investors would be hurt by the redemptions, one of the people said. The surprise decision by one of Chicago’s notable hedge fund investors highlights the difficulties of the fund-of-funds business as declining assets force the industry to consolidate.

“Allocation to the fund of hedge fund industry has declined, which has made it more difficult to maintain scale,” said Ted Meyer, a spokesman with Natixis Global Asset Management, Aurora’s parent company.

Industry’s Struggle

Funds of hedge funds have struggled to attract assets as investors voice concerns over paying a layer of fees to the middlemen on top of those charged by the underlying managers. The number of fund of funds around the world declined to 1,616 at the end of the first quarter from 2,462 in 2007, according to Hedge Fund Research Inc.

50 South wasn’t the only suitor for Aurora. Mesirow Financial -- which manages $30.5 billion, including almost $12 billion in hedge funds -- was also in talks to purchase the firm before the agreement with 50 South was struck, one of the people said. Both 50 South and Mesirow are also based in Chicago.

Debbie Krieps, a spokeswoman for Mesirow, declined to comment.

While Aurora winds down, at least one member of its senior team may spin out to start a new firm that will seed emerging managers, one of the people said.

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