Aberdeen to Buy Funds-of-Funds Arden Asset Management

Attracted by Arden's liquid alts and hedge fund platforms, Aberdeen has inked its second big acquisition in as many months.

Aberdeen Asset Management has reached a deal to purchase New York-based hedge fund specialist Arden Asset Management, the acquiring firm announced Tuesday. 

The transaction—targeted to close in the fourth quarter of 2015—would inject roughly $10 billion in discretionary and advisory assets into Aberdeen’s struggling funds-of-funds business. Its two closed-end multi-manager funds peaked in size, like many of their peers, in 2008 with close to $9 billion under management. As of this March, they together hold $820 million.

“Arden’s liquid alternatives platform in the US is particularly attractive.” —Aberdeen Chief Martin Gilbert

Along with Arden’s capital, its team and liquid alternatives product suite “will be fully integrated” into this existing hedge fund unit.

“This will position Aberdeen as a leading hedge fund investor with more than 30 investment professionals and around $11 billion of assets under management for the combined team,” the Scotland-based manager said.  

The deal poses three key benefits, Aberdeen explained: An expanded alternatives platform with a US/global institutional client base, a ready-made liquid alts offering, and US-based talent “with an investment process which is highly complementary to Aberdeen’s.” 

Arden is the second alternatives funds-of-funds manager with American roots that Aberdeen has moved to take over in the last few months. 

In late May, Flag Capital Management signed on to fold its $6.3 billion private equity and infrastructure investment operation into the full-service management shop. The deal is projected to close in the third quarter of this year. 

Pakenham Partners served as financial advisor for both acquisitions, neither of which had their price tags disclosed. 

Merger and acquisition (M&A) activity in asset management overall surged last year, PricewaterhouseCoopers data showed. Several mega-deals ($1 billion-plus) pushed 2014’s total disclosed transactions to $12.7 billion—nearly six times the $2.6 billion recorded in 2013. 

The consulting firm singled out hedge funds and mutual funds as particular industry hot spots, noting that deal volume for each climbed 40% to 50% year-on-year. 

Asset management offers few deals to would-be buyers, according to Asset Management Finance founder Rob Jakacki, who spoke to CIO last February. Except, he felt, in one area. 

“There is some renewed activity in buying funds-of-hedge-funds businesses,” Jakacki said, citing Carlyle Group’s 2013 purchase of Toronto-based Diversified Global. The alternatives platform oversaw $6.7 billion at the time of its purchase, and reportedly cost Carlyle $33 million upfront plus up to $70 million over the next seven years, performance dependence. 

“It’s a contrarian investment, I suppose. That said, there certainly are some good funds-of-funds—those that weren’t just asset gatherers, piling on structured products for the retail market and suffering the unwind that came after,” Jakacki said. “Some funds-of-funds have the right focus on risk strategies tailored for their clients, and those can be of value.”

Related: Asset Manager M&A Values Surge & Should One Size Fit All Managers?