The private equity firmKohlberg Kravis Roberts (KKR.N) has bought Prisma Capital Partners LP, a hedge fund money manager. The move marks the most recent in a series of private equity investments in smaller fund-of-fund organisations in a bid to broaden their asset bases.
Prisma was founded by Gavyn Davies, Thomas Healy and Girish Reddy, three Goldman Sachs breakaways, and has a client base made up largely of institutional investors, insurance firms and pension funds. Institutional investors make up by far the largest proportion of the $7.8 billion worth of assets it has in its control.
Such fund-of-fund organisations have actually been in decline in recent times. This may come as a surprise to some, and justifiably so – investments in the hedge fund sector in its entirety have rocketed through the $2 trillion benchmark first observed in 2011.
Investors seeking to tighten their belts more rigorously than previously are seeking to cut out any extra costs, and they include intermediaries such as these, and are instead looking to invest directly, often at the expense of organisations such as Prisma.
In addition to this, the industry is still recovering from the fallout from Bernie Madoff’s record breaking Ponzi scheme, which was followed up by Allen Stanford’s recent prison sentence of 110 years for misleading investors and running a pseudo-Ponzi operation with his financial vehicles. The scandals have wrought both mental and financial damages on an industry that tries to keep out of the public eye wherever possible.
It is believed that KKR intend to reinvest all management cash proceeds that arise as a result of the acquisition and the specialised sector of Aegon, the insurance company based in the Netherlands which owned a minority stake, will sell its share, but is understood to want to remain a substantial investor in Prisma’s ongoing business interests.
Details are expected to be finalised towards the end of the year, and the terms of the deal remain undisclosed.