While 32 hedge fund deals closed in 2014, this number rose to 42 in 2015 on a global scale. This was announced by the 4th edition of hedge fund industry overview of M&A as released by Madison Street.
Another fact announced was regarding transaction volume in 2015 as has been measured by AUM. This was nearly 27% higher as compared to 2014. There have been many reasons behind this. One of these is that there have been a lot of transactions that had taken place during the fourth quarter of 2015. Besides, there are several other key drivers that have created this momentum. Hence 2016 has been positioned to be a record year with regard to transactions in terms of hedge fund M&A.
The Madison Street Capital reputation is at stake when they claim that the industry assets of hedge funds will be high in 2016 even though their performance had been mediocre in 2015. Their performance has lagged, but still, the institutional investors are moving towards alternative asset management as they expect to get higher returns that can match their liabilities which are rising. There are the managers who are looking after smaller hedge funds. They have to struggle in order to get new capital. Due to this reason, they need to operate much below their optimal portfolio capacity. The fact is that hedge fund managers have high operational costs besides having to face the pressure on fees. Due to all these factors, the hedge fund managers are looking at strategic alternatives.
Madison Street Capital feels that hedge fund deals will be much stronger in 2016 as compared to 2015. There are several deal mechanisms that are being used in order to accommodate the buyers as well as sellers. This means making use of traditional M&A, besides structuring transactions either as seed or as incubator deals. These would also include revenue-share stakes, besides the PE stakes, as well as PE bolt-ons, and so on.
Madison Street Capital is optimistic that the fragmented hedge fund industry is going to get consolidated. This will be managed through opportunistic partnerships. These will help to bridge distribution to the product being offered. Karl D’Cunha is the Senior Managing Director at Madison Street Capital, LLC. He has given a lot of insight on the subject. His firm is a market leader in this industry, and he has a lot of knowledge on this subject.
Visit http://madisonstreetcapital.org/ to learn more.