KKR Buys a Minority Stake in a UK Hedge Fund


September 10, 2015


UK-based hedge fund, Marshall Wace, announced on Wednesday that the US private equity firm, KKR, has acquired a stake in the hedge fund. The private equity firm has taken a 24.9% stake in the London-based company, with the option to increase its stake in the future.


The Agreement


According to the official statement, the private equity firm will purchase the 24.9% from eight of Marshall Wace’s capital partners. These include the company’s founding members, Paul Marshall and Ian Wace. KKR is expected to pay for the stake partly with shares in KKR and in cash. Under the agreement, the cash must be reinvested in Marshall Wace’s investment funds for the next five years.


Although the price remains undisclosed, the Financial Times reported the private equity firm would use 7.4 million of its shares, which at current market prices are worth $147 million.


Furthermore, the private equity firm has the option to increase its stake in the near future. It could potentially hold 39.9% of the hedge fund in the coming years.


Marshall Wace’s chief executive, Ian Wace, commented the deal by stating, “Over the last few years we have been approached by several firms looking to invest in our business, but KKR offered something different: a true, long-term partnership.”


The hedge fund was established in 1997 and it currently has around $22 billion assets under management. According to the Telegraph, the firm’s profits during the financial year ending on 28 February 2014 stood at around $315 million (£205.3 million).


KKR’s Hedge Fund Business


The private equity firm has a strong history in hedge fund and it’s been quite active in the industry in recent years, albeit with mixed results. Last year, the firm closed its first stock hedge fund by stating a lack of scale was the reason for the closure.


KKR has also bought into two hedge fund firms. These are the Bermuda-based Nephila Capital Ltd. and a US-based BlackGold Capital Management LP.


Scott Nuttall, the head of global capital and asset management at KKR, said in the statement, “We believe Marshall Wace has built a premier of franchise within the liquid alternative space, and the firm has an entrepreneurial DNA and a culture that is similar to KKR’s”.


Following the Industry Trends


Marshall Wace is yet another hedge fund selling a minority stake to outside investors, especially in London. Macro trading hedge funds such as Caxton and Winton have previously sold minority stakes. Both funds sold to Goldman Sachs’s Petershill fund.


In addition, hedge funds are moving away from the ownership of the funds’ founders. This is hoped to improve governance and provide new opportunities for the funds. Marshall Wace has had to realign its strategy in the past and it currently relies on technologically sophisticated trading strategies instead of being a traditional ‘long-short’ hedge fund.


Marshall Wace stressed that its investment strategy would remain the same under KKR. Mr Wace also stated he has no plan of retiring from the business just yet. “We have no intention of going anywhere,” he told the Financial Times.

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