Permal merger to create $24 billion FoHF

Permal is merging with smaller UK fund-of-hedge-fund peer Fauchier – majority-owned by BNP Paribas Investment Partners – effectively creating one of the world’s biggest FoHFs with about $24 billion in assets.

The financial terms of the deal, which is expected to be finalised in the first quarter of 2013, were not disclosed.

Permal, the FoHF business of UK asset management giant Legg Mason, has about $17 billion in AUM – down from the $19 billion it managed in 2005 – while Fauchier oversees $6 billion.

Legg Mason says the two FoHFs have different focus areas and markets. Permal has a largely US base of institutional investors, with multi-manager products specialised in equity hedged and event-driven strategies.

Fauchier, meanwhile, has a large pension base in its clientele (70%), which are mostly based in Europe and Asia – namely Australia and Japan.  It focuses on fixed-income, credit and macro trading strategies.

The merger will result in a global investment team of about 60 executives based across New York, London, Paris and Singapore. It will be led by Permal chief investment officer Robert Kaplan and Fauchier chief executive Clark Fenton.

BNP Paribas Investment Partners will distribute Fauchier and Permal products globally. Of the two, Permal has a bigger exposure to Asia.

Permal last year appointed two China specialists to its regional operations, and also runs a China Strategy Fund, launched in 2010. The firm additionally has a Permal Emerging Markets Holding FoHF, with Asian equities accounting for about half of its allocations.

Permal’s tie-up with Fauchier continues a trend of consolidation in the industry, with several small to mid-sized FoHFs facing closure or merger with a peer.

A growing number of large institutions are now directly investing in hedge funds, effectively re-allocating capital that traditionally would have gone to FoHFs.

This year has seen Hong Kong-based Penjing Asset Management merge with Swiss alternatives group Gottex Fund Management, and Man Group of the UK acquire Financial Risk Management Holdings.

Other recent FoHF deals include KKR’s takeover of Prisma Capital, and Franklin Templeton’s acquisition of a majority stake in K2.