Goldman Sells Stakes in Five Hedge Funds for $800 Million

  • Affiliated Managers buys stakes held by Petershill Fund I
  • Management of all purchased funds to remain, AMG CEO says

Goldman Sachs Group Inc. is selling minority stakes in five hedge funds to Affiliated Managers Group Inc. for about $800 million.

AMG will acquire stakes held by the Petershill Fund I, which has holdings in Winton Capital Group, Capula Investment Management, Partner Fund Management, Mount Lucas Management and CapeView Capital, the company said in a statement on Monday.

AMG, which has a collection of boutique managers specializing in stocks, hedge funds and private equity, said its assets under management are expected to increase by $55 billion to almost $700 billion after the deal. Goldman is selling its stakes at a 22 percent premium to their net asset value at the end of last year. The deal comes as the $2.9 trillion hedge fund industry faces a growing backlash over lackluster performance and the fees they charge.

“The challenges we are seeing in the hedge fund industry apply to certain
funds, strategies and clients,” Sean Healey, chairman and chief executive officer of AMG said in a telephone interview on Monday. “But we’re still seeing ongoing demand from institutional clients globally, such as sovereign wealth funds and pension plans.”

Exit Strategy

Goldman Sachs felt this was an attractive exit for investors who had been in the fund for almost a decade, according to a person with knowledge of the decision. Funds like Petershill tend to hold investments for as long as 10 years and as the bank was considering various ways to return clients’ money it received the offer from AMG, the person said.

The fund generated a return on investment of about 2.5 times the total money invested before fees, according to a letter to investors obtained by Bloomberg. The investments and the remaining Petershill funds are housed in Goldman Sachs Asset Management, part of the investment management division run by Eric Lane and Tim O’Neill.

Petershill Fund I raised $1 billion in 2007 and invested in nine firms. Petershill competes with of Blackstone Group LP and Dyal Capital Partners in buying holdings in hedge-fund firms, which sell stakes because a big-name investor can help them win institutional clients.

Premium to Assets

The Petershill Fund I has generated 15 percent annualized cash yield for its investors, according to the letter to investors. A spokesman for Goldman Sachs confirmed the contents of the letter.

“This transaction demonstrates the potential to exit positions to strategic asset management buyers, such as AMG, at attractive valuations,” Petershill said in the letter. “The sale of individual interests to a financial buyer or a portfolio-level IPO remain alternative monetization routes in the future for the ongoing Petershill program.”

AMG said the $800 million for the deal will be “paid in cash at closing, funded up to 50 percent in equity.” Separately, AMG said today it intends to sell 2.5 million shares of its common stock. The underwriters will be granted an option to purchase up 375,000 additional shares.

Healey said by phone that talks with Goldman started in March when he flew to London and had coffee with Mike Sherwood, co-chief executive of Goldman Sachs’s international group.

Since Petershill I invested in the five firms, their combined assets grew to $55 billion from $18 billion. Goldman Sachs has raised $1.5 billion in the Petershill II fund to continue investing in hedge funds, a person said in May.

Funds Struggle

In the past two quarters, investors have pulled almost $17 billion more out of hedge funds than they put in, the worst outflow since 2009. More investors are demanding that struggling funds lower fees from the 2 percent of assets and 20 percent of profit they typically charge.

The $12.8 billion Winton Futures Fund lost 3.9 percent through June 1 this year after gaining almost 1 percent in 2015, according to a spokesman for Winton Capital Group.

Last year, AMG bought a stake in Leda Braga’s Systematica Investments from BlueCrest Capital Management. AMG has also bought into investment firms including BlueMountain Capital Management, ValueAct Capital and AQR Capital Management.

Before it's here, it's on the Bloomberg Terminal.