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Highbridge Capital confirms acquisition of controlling stake in Brazilian hedge fund Gavea Investimentos

Friday, October 29, 2010
Opalesque Industry Update – Global hedge fund firm Highbridge Capital Management, which is owned by JP Morgan Chase & Co., has confirmed acquiring a 55% controlling stake in the $6bn Brazilian alternative asset manager Gavea Investimentos and plans to further raise its ownership to 100% in the near future.

The acquisition of Gavea will give the U.S. bank a stronger foothold in emerging markets, according to a report by Agence France-Presse. JP Morgan did not disclose financial terms of the deal, although local media reports indicated that Highbridge will pay Gavea $270m for the 55% shares.

Mary Callahan Erdoes, chief executive of JP Morgan Asset Management, parent of Highbridge said in a statement, "This has been a long courtship of one of the finest global macroeconomic hedge fund managers in the world.”

"Our clients look to us to invest their money with the smartest, most talented alpha managers. Partnering with Gavea gives our clients the ideal combination of local emerging markets expertise with the global platform of JP Morgan Asset Management," Callahan added.

Arminio Fraga, co-founder of Gavea and former head of Brazil’s central bank, currently sits as chairman and chief investment officer at Gavea. He is also a member of JP Morgan’s advisory body, International Council.

Highbridge’s move into Gavea is the second significant cross-border acquisition of a Brazilian alternative asset manager in a month. In late September, private equity giant Blackstone Group LP paid $200m to purchase a 40% stake in the $3.7bn Sao Paolo-based Patria Investimentos, said the Wall Street Journal. The two firms will cooperate in building their businesses in Brazil and throughout South America, said a Blackstone press release.

It also follows earlier decisions made by large international players such as Brevan Howard and Man Group, two of Europe's largest hedge fund firms, to launch Brazil-focused funds or to start operating in the country, reported Reuters.

Jorge Rodriguez, Latin America regional manager for Man Investment, the asset management division of Man Group which manages $63bn in assets told Reuters, "On the one side companies are looking at the economic growth in the country, the rising wealth for many Brazilians. There is also an opportunity to offer a series of local products to its international clients and gaining Brazilian clients for its global products.”

From being shunned by many investors because of the unstable or "boom and bust" economies in the region, Latin America is enjoying a reemergence of talent and balanced risk taking in the hedge fund sector. But data provider Merlin Securities was quick to warn in a report last month that even with the relatively promising outlook, managers in the LatAm region must be prepared to compete in a tough global environment (see recent Opalesque Exclusive: Landscape of hedge fund industry in Latin America improved as the region entered the competitive global race here).

The Eurekahedge Latin American Hedge Fund Index was up 1.97% (est.) in September and 6.02% YTD, whereas the Dow Jones Brazil TSM Index was up 10.60% and 4.98% YTD.

Highbridge and JP Morgan
In an interview with The Journal, Highbridge's co-founder and Chief Executive Glenn Dubin said the acquisition of Gavea was "almost identical" to J.P. Morgan's purchase of Highbridge six years ago. JPMorgan bought a majority interest in Highbridge in December 2004 and gained full ownership of Highbridge in 2009.

"The similarities are across a financial, operational and cultural point of view," Dubin said.

In September, JP Morgan Chief Executive Jamie Dimon announced the bank would keep Highbridge in its current form because the recently-approved financial law in the U.S., known the Dodd-Frank Wall Street Reform and Consumer Protection Act, does not affect JP Morgan’s ownership of the hedge fund.

Instead, JP Morgan will move the company’s best proprietary traders to its asset-management division.

U.S. President Barack Obama signed the controversial financial reform law or the Dodd-Frank Act in July this year. It prohibits, among other things, the banks’ ability to trade with their own money — known as proprietary trading.

In the last week of September, JP Morgan disclosed it started moving proprietary traders to its asset-management unit from the firm’s investment bank to comply with the Dodd-Frank Act that restricts a bank’s ability to trade for its own account. In a memo sent to employees, proprietary traders in the equity, emerging markets and structured credit divisions were told to report to Erdoes.

Highbridge manages $21bn of capital for institutional investors, public and corporate pension funds, endowments, foundations and family offices. Based in New York, it also has offices in London, Hong Kong and Tokyo.

See our related Opalesque Video Interview on Opalesque.TV of Otavio Vieira, Director of Investments and Head of Fund Advisory Services of Brazil’s Safdie Group here.

And you can access our 2010 Opalesque Roundtable in Brazil here.
- Precy Dumlao

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