U.S. News

Hedge Fund Merger to Reunite Star Traders

By Sam Jones, Financial Times

Two hedge funds that were both started by former star traders at Goldman Sachs are to merge in a deal that marks one of the biggest steps over the past year in the long-anticipated consolidation of the industry.

New York-based TPG-Axon, one of the world’s biggest hedge funds, has agreed a deal to merge with UK-based Montrica Investment Management, one of London’s largest hedge funds specialising in trading on events such as takeovers.

Photo: Oliver Quillia for CNBC.com

The deal will reunite the former leading lights of Goldman Sachs’ Principal Strategies group – once the bank’s biggest and most lucrative in-house trading team.

TPG-Axon, which manages more than $9bn in assets, was founded in 2005 by Dinakar Singh, the chief executive of GSPS Group.

Montrica, which manages $1.1bn in assets, was spun out of GSPS a year later, managing $3bn at its peak. It was founded by Andrew Metcalf, the head of the GSPS’s European operations under Mr Singh and Svein Høgset, a senior trader, both of whom teamed up with the head of rival fund Citadel’s European risk arbitrage business, Frederik Juntti.

No money will change hands in the merger, but all three of these founders are to become partners at TPG-Axon.

Hedge fund executives have been predicting mergers among top-flight funds ever since a volatile 2008 put a strain on the industry.

However, with the exception of the Man Group’s $1.6bn bid for GLG Partners this year, little actual dealmaking has so far taken place.

The tie-up also highlights the extent to which hedge funds are having to club together to survive even as growing numbers of in-house traders at banks are looking to exit and set up their own funds amid an increasingly onerous regulatory environment.

TPG-Axon believes the Montrica deal will help it make inroads into European markets.

In a letter obtained by the Financial Times, Montrica told its investors it believed the deal would enable it to significantly scale up its existing operations.

“Montrica will benefit from scale advantages including better access to company management teams, better leverage with counterparties, and further enhancements to its existing back office support function,” the letter said.

Spokesmen for TPG-Axon and Montrica declined to comment.

TPG-Axon was launched with the backing of private equity group TPG and fast became one of the most successful start-ups ever, at its peak managing more than $16.5bn.

As at the end of July, TPG-Axon’s flagship fund was up approximately 2 per cent so far this year, according to an investor.

The fund returned 19 per cent in 2009. Montrica’s main fund is meanwhile up 1.75 per cent, and returned 18.7 per cent in 2009.