UPDATE 3-AREP buys $7 billion Icahn fund management firm

(Adds Icahn comment)

NEW YORK , Aug 9 (Reuters) - American Real Estate Partners (AREP) LP ACP.N, a holding company 90 percent owned by investor Carl Icahn, said on Thursday it acquired Icahn's investment firm, effectively bringing the money manager public.

The deal sent AREP shares up as much as 16 percent on the New York Stock Exchange.

AREP said it paid $810 million in AREP depositary receipts for Icahn Funds Management Co., a group of hedge and other funds with about $7 billion in managed assets. AREP would pay up to an additional $1.1 billion in depositary receipts should the company meet performance goals over four years.

Icahn, a veteran investor who regularly challenges corporate boards to boost performance, called the deal "a transformational event" for AREP, which will be renamed Icahn Enterprises LP and consolidates many of his holdings under a public, albeit thinly traded, entity.

"The money management area is still a growth area, especially today with the turmoil going on in the markets," said Icahn in an interview.

The combination of AREP's real estate investment and fund management arms gives it more heft to make acquisitions and take activist stances in companies that are underperforming, a hallmark of Icahn's strategy in recent decades.

Icahn Enterprises will be "an activist-oriented money manager who can take advantage of distressed situations that I believe might be available very shortly," said Icahn.

AREP stock was up $12.53, or 14.3 percent, to $99.94 in late afternoon trading. Earlier, the stock traded as high as $101.45.