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Alternative manager M&A to outpace traditional manager deals for first time due to Volcker Rule - Freeman & Co

Monday, September 13, 2010
Opalesque Industry Update - Freeman & Co., an independent advisor to the financial services industry, released the latest edition of its asset management industry overview including data on M&A and deal activity. Freeman & Co. projects that in 2010 alternative manager deals will outpace traditional manager deals for the first time.

Through June 30, 2010, alternative asset manager deals were up 108% to 52 transactions YTD compared to 25 transactions in the same period last year. Alternative manager deals should exceed 100 in 2010, with acceleration in the second half due to pressures from the “Volcker rule” and other international regulatory initiatives. In contrast, traditional manager deals totaled 31 deals during the first six months of 2010 and may only reach 70-75 transactions in 2010.

“With alternative manager deals set to outpace traditional manager deals for the first time in 2010, we have seen the full maturation of the alternative industry. Alternatives are a necessary part of any sophisticated investor’s portfolio, so financial services companies have to address this need.” says Eric Weber, Managing Director and COO at Freeman & Co. LLC.

The report also reviews current industry trends including a review of how financial regulatory reform and the “Volcker Rule” are acting as a catalyst for alternative manager deals as well as the rise in prominence of UCITS as a product packaging solution for hedge fund distribution in Europe.

In summary, the report details the following
· Deal Activity / M&A: The number of transactions increased to 106 in 1H 2010 versus 87 in 1H 2009, a 22% increase. Total AUM involved was $417 billion. Average deal AUM size dropped from $36.9 to $5.5 billion. Deals with alternative asset managers increased to 52 in 1H 2010 from 25 in 1H 2009, a 108% increase, as the need for size, scale and distribution continue to drive M&A.

· Alternatives: M&A activity in the alternative sector is on pace to exceed 2008 and 2009 levels as firms consolidate, get acquired by larger strategic firms or are spun-out by banks facing regulatory issues. As a result, alternative manager deals are on track to outpace traditional manager deals for the first time.

· Financial Regulatory Reform and the “Volcker Rule”: The limitations imposed on proprietary trading and PE / HF sponsorships already have caused global reevaluation of the diversified bank business model, with Citigroup and Bank of America selling PE / HF business units.

· UCITS: UCITS III hedge fund sector now takes up 7% of the total HF industry. There is no sign of its growth slowing. We see an increase in its use by non-European firms who wish to access the European capital markets.



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