BOSTON, Dec 16 (Reuters) - Arpad Busson will sell his EIM Group to alternative investment manager Gottex Fund Management Holdings Ltd for $38 million, in a deal underscoring a trend of consolidation in the $2.5 trillion industry.
The all-share deal, which was announced on Monday, will boost Gottex's assets under management to roughly $10 billion. The company's shares rose nearly 9 percent during the day on Monday after the deal was announced.
Busson will become the company's non-executive chairman while Gottex founder Joachim Gottschalk will be chief executive of the combined businesses which offer clients custom-made investments, the men said in an interview.
The sale further illustrates how smaller players in the hedge fund industry are being forced to grow through acquisitions as investors protest both high fees and relatively lackluster returns - the average hedge fund has returned only 6 percent this year while the S&P gained 25 percent. Many institutional investors are preferring to invest directly, cutting out middlemen like funds of hedge fund companies.
In one of the recent high profile deals, private equity giant The Carlyle Group announced plans this month to buy Diversified Global Asset Management. Earlier this year, Morgan Creek Capital Management announced plans to buy Signet Capital, and last year Franklin Resources bought K2 Advisors.
Busson's firm, founded in 1992 and boasting $14 billion in assets at its peak, had been on the block for years as the investor, known for his relationship with Hollywood actress Uma Thurman, searched for a business partner in the wake of the financial crisis. EIM's assets have dwindled to about $3 billion.
After the deal closes, the 50-year old French-born financier will be the biggest shareholder in the Swiss company, owning roughly 30 percent. Regulators will need to approve the deal and Gottex shareholders will need to approve the issuance of 14 million new Gottex shares.
Busson and Gottschalk, 66, have been competing for decades and Busson said he is happy with the deal which allows him to stay active in hedge funds. "Our relationship has always been based on mutual respect and admiration," he said.
Gottschalk said the company will seek to attract new business with additional products, including a mutual fund for retail clients that is expected to be launched in the United States early next year. "We are heading partly back to America with the new product, and to Asia," Gottschalk said.
For Gottex, the merger will lead to cost savings of $10-12 million and it should be accretive to earnings on a per share basis twelve months after completion, the company said.
Gottex is headquartered in Switzerland, with offices in Boston, London and Hong Kong. Its shares rose 7.11 percent to close at 2.41 francs on Monday after hitting a high of 2.68 francs. Since January, the shares have lost 13 percent.
The combined group will focus on multi-asset, multi-manager and Asia-focused investments, as well as risk and infrastructure, Gottex said, adding it remained on the lookout for new partners to widen its distribution.
Gottex said last month it would form a joint venture with China's VStone Asset Management, to further its aim to invest in Asia and raise capital from the region.