September 9, 2015 / 10:33 AM / 4 years ago

KKR to buy stake in Marshall Wace in hedge fund drive

LONDON/BENGALURU (Reuters) - American private equity firm KKR & Co (KKR.N) is buying a stake in European hedge fund operator Marshall Wace, raising its bets on the rapidly growing $3 trillion industry.

KKR will acquire a 24.9 percent stake in the London-based company, one of Europe’s biggest hedge fund operators with $22 billion of assets under management, with an option to raise it to 39.9 percent.

The two firms did not disclose the deal value but said the majority of the proceeds would be reinvested in Marshall Wace’s funds or held in KKR stock.

A number of big companies have sought to buy stakes in firms in the hedge fund industry - where assets have tripled to $3 trillion in the past decade, according to data from HFR.

Meanwhile, many hedge fund firms are keen to strike such deals as the backing of a big company makes their products more competitive as some of the world’s biggest investors such as pension funds and endowments are gravitating towards larger and more well-established industry players.

“Through this partnership, we increase meaningfully our breadth and capabilities,” Scott Nuttall, head of global capital and asset management at KKR, told Reuters. “This is a driver of fee growth for us ... and further diversifies our earnings.”

Similar deals in the sector have included Blackstone Group (BX.N) buying a stake in hedge fund Magnetar Capital and Goldman Sachs (GS.N) investing in hedge funds Caxton Associates, Knighthead Capital Management and Pelham Capital.

Marshall Wace, founded in 1997 by Paul Marshall, 56, and Ian Wace, 52, specializes in hedge funds mainly betting on rising and falling stock prices.

“For us, it’s about the future,” Wace told Reuters of the KKR deal. “The reality is that clients over time have wanted to be with bigger and stronger counterparts and this presents a very, very credible force,” he added.

KKR started buying stakes in hedge funds in 2013 when it picked up a 24.9 percent stake in Nephila, which makes natural catastrophe and weather risk-related investments. The Marshall Wace deal doubles its exposure to the hedge fund sector in terms of assets under management.

Editing by Greg Mahlich and Pravin Char

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