UPDATE 2-UBS may sell hedge fund unit to management-report

* UBS may sell Alternative & Quantitative Investments

* Management buyout offer on the table, newspaper says

* Price could be around $850 mln, analysts say

(Adds further analyst comment)

By Jason Rhodes

ZURICH, April 21 (Reuters) - UBS AG (UBSN.VX)(UBS.N) may sell all or part of its hedge funds unit in a management buyout, a newspaper said on Tuesday, in what would be a new step by Switzerland's largest bank to raise cash and reduce its risk profile.

Citing unnamed financial sources, the Neue Zuercher Zeitung said a management buyout offer for Alternative & Quantitative Investments, or parts of it, was on the table. Analysts say UBS could reap about $850 million from the sale.

The expected sale follows comments by new UBS Chief Executive Oswald Gruebel last week that the world's largest wealth manager was conducting a thorough review of its businesses before deciding which ones to exit. A company spokeswoman said UBS declined to comment.

The report came a day after UBS, one of the European banks hit hardest by the credit crisis, said it was selling Brazil's Banco Pactual for about $2.5 billion to former management as part of Gruebel's radical restructuring plan. [ID:nLK560028]

"A&Q ticks the box in terms of size, but you need someone with the cash ready to buy," said ZKB analyst Anreas Venditti, adding a sale price equal to around 2 percent of assets under management would lead to a deal worth around 1 billion Swiss francs ($854.7 million), if it went through.

A&Q had more than $39 billion in assets under management as of Jan. 1, 2009, and employs about 350 people worldwide.

Former Credit Suisse boss Gruebel said last week he would not refrain from cutting entire lines of business, as he announced 8,700 new job cuts. [ID:nLF479909]

He also said he would take immediate steps to bolster the bank's capital base after the bank's Tier 1 ratio slipped to 10 percent at the end of March from 11 percent at the end of 2008.

STRUGGLE TO RECOVER

The Swiss bank is struggling to return to profitability and rebuild its brand after massive investments in risky U.S. assets forced it to write down more than $50 billion and accept government backing.