Hedge fund firm losing pulling power
ZURICH (Reuters) - Celebrity financier Arpad Busson has been mulling a sale of EIM, the hedge fund investor he founded in the 1990s, for several months but buyers with pockets as big as the firm's glossy profile may prove hard to find.
EIM's assets have fallen to around $6.2 billion, a spokesman told Reuters, less than half their peak level of $14 billion, and the returns from most of its funds are below their high-water mark, the level at which they can levy performance fees.
"The rumours (of a possible sale) have been around for a while....the company has got 100 people to pay, about the same as it had when it was pulling in three times as much in fees as it is now," said one London-based fund of hedge funds executive familiar with the firm.
Busson, well known for his relationships with actresses Uma Thurman and Farrah Fawcett and with model Elle "the Body" Macpherson, hit the headlines again last week as speculation concerning a sale of EIM resurfaced.
But as hedge fund returns falter in choppy financial markets, sources suggest Busson may have left his exit too late.
"It's a double whammy of shrinking assets reducing income from management fees and poor returns hitting performance fee income," the executive added.
A spokesman for the company said the group was always open to opportunities but declined to comment on the sale rumours.
Many funds of hedge funds have been hit by outflows as large clients choose to invest directly in hedge funds, thus cutting out a layer of fees.
EIM, which once managed money for the Bin Laden family, from which the deceased al-Qaeda leader Osama Bin Laden was estranged, has also suffered outflows after losing money to Bernard Madoff's ponzi scheme.
While firms that invested in Madoff have not seen their businesses decimated in the way some commentators expected, many have had to reinvent themselves, for instance Man Group (EMG.L), which later merged its two fund of funds units.
While there are other partners at EIM, Busson, known throughout the industry as "Arki", owns the bulk of the company and is struggling to raise the breadth and depth of investor interest he was hoping for, industry sources said.
They said any potential buyers would pay particular attention to the true level of the company's assets, now mainly held in custom-made mandates rather than the company's flagship fund of funds, and were unlikely to dig deep to pay for EIM.
The prices these groups can command have plunged in recent years.
Man Group last month said it was buying $8 billion fund of hedge funds group FRM at a price equivalent to a maximum of 1 percent of its assets under management, depending on how much of those assets it can retain.
That was a far cry from the 6.8 percent of assets Man paid for GLG in 2010 in a deal many industry insiders now regard as too expensive.
Current metrics would suggest EIM could sell for $50 to $70 million, but industry sources said that is below Busson's asking price, which these sources indicated at above $100 million.
A "BUSSON DISCOUNT"
Busson plays a peripheral role in managing EIM these days, several sources including former EIM staff said.
But his reputation and connections still count for a sizeable portion of EIM's assets and a change in management and ownership could dent the firm's pulling power even further.
"You need to have a Busson discount," said a Zurich-based asset manager, referring to the founder of the firm. "If he goes, AuM will shrink so why pay for AuM without him sticking around?," the source said.
New rules requiring managers like EIM to pass on to their clients the discounts they obtain from the funds they invest in have deprived these vehicles of a chunk of their revenues.
"With new regulations they can't ask for retrocessions from underlying managers without passing them on," said the Zurich based manager.
EIM's once numerous sales force, which included a team of elegant saleswomen known in hedge fund circles as "Arki's Angels", has been trimmed back, sources familiar with the company said.
One alternative to the sale of EIM could be a merger with one of Geneva's troubled private banks, whose margins have nosedived since the financial crisis as interest rates hit rock bottom and clients bought cheaper products and traded less.
A deal like this would be a defeat for Busson, as it would prevent him from cashing out for the price he wants while leaving him with less control over EIM, sources said, adding that partners who want to sell would also oppose such a deal.
Private bank UBP, also a Madoff victim, is integrating ABN Amro's Swiss bank and the $3 billion Paris-based fund of hedge funds Nexar, both bought last year, and is unlikely to be interested in EIM, sources close to both companies said.
(Additional reporting by Laurence Fletcher; Editing by David Cowell)
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