Asian Conglomerates, Flush With Cash, Scour for U.S. Fund Deals
In the investment management world these days, the deals are not coming from American or British banks but from big Asian conglomerates flush with cash.
SoftBank, the Japanese technology and telecommunications conglomerate, scooped up a New York-listed private equity firm this week. HNA Group, the Chinese aviation and shipping conglomerate, took a piece of a New York hedge fund company last month, a week after buying a New Zealand investment company. And HNA has tossed its hat into the ring to acquire a British insurer and its asset management unit.
Masayoshi Son, the billionaire founder of SoftBank, wants to create a “Berkshire Hathaway of the tech industry.” In January, he met with President Trump, then the president-elect, pledging to invest $50 billion in the United States and to create jobs there as part of a new $100 billion investment fund called SoftBank Vision Fund.
For the lower-profile HNA Group, which has interests in cloud computing companies, airlines and hotels, the acquisition of the SkyBridge Capital hedge fund of funds firm last month was part of what it described as a strategy to “build a global asset management business.”
The small spurt of deals is occurring as Asian companies look for expertise on where to invest their stockpiles of money and hone their ambitions to become financial conglomerates. Several of these multibillion-dollar firms have hired New York banks to help them find investments that include private equity and insurance.
It is an opportunistic time for the buyers and the sellers.
For many partners at hedge fund and private equity firms, it is a good time to sell. Years of disappointing performance and cheaper index-tracking alternatives have emerged as a challenge to what was once a lucrative, high-fee business. Firms like SkyBridge Capital, which offer investors a chance to spread their money around in an array of other hedge funds, the so-called fund of funds business that layers on additional fees, have had a particularly difficult time lately.
“The fund of fund industry is facing a lot more challenges than it ever has,” said Michael Rees, head of Dyal Capital Partners, which buys stakes in hedge funds and private equity firms. Faced with difficult markets, several hedge fund firms closed last year and returned money to investors. Against a backdrop of heavy losses and investor withdrawals, Fortress Investment Group was forced to close a $1.6 billion flagship hedge fund, run by the outspoken trader Michael Novogratz, last year.
Sprawling Asian firms with voracious appetites for deals have a chance to diversify when target acquisitions may be cheaper.
SoftBank paid $3.3 billion for Fortress, less than half its $7.4 billion value when it became one of the first private equity firms to publicly list shares in February 2007. When it made its debut on the New York Stock Exchange, each Fortress share was worth $35. On Monday, the day before the SoftBank deal was announced, Fortress was trading at less than $6 a share.
HNA bought its stake in SkyBridge from Anthony Scaramucci, the firm’s flamboyant former leader, just as he was seeking a job in the Trump White House and needed to quickly divest his stake, he told The New York Times in a recent interview. The full financial terms of the deal have not been disclosed, and it is unclear exactly what kind of a valuation HNA paid for its stake in SkyBridge. But the firm has struggled in recent years, and its asset pool has shrunk by more than $2 billion since mid-2015. Its flagship fund has lost money for investors for two consecutive years.
Under the SoftBank deal, the Fortress co-chairmen, Pete Briger Jr. and Wesley Edens, now own stakes that are worth more than $500 million each. They will be required to invest half of each of their after-tax proceeds back into funds managed by Fortress, but will still have a remarkable payday. Mr. Scaramucci is expected to receive around $180 million from HNA for his stake in SkyBridge.
Despite concerns about the business models, investment firms like Fortress and SkyBridge offer these buyers new distribution networks and access to wealthy investors.
Gaining a toehold in the American investment world means firms like HNA and SoftBank have access to information that would otherwise be out of their reach, according to Ted J. Gooden, a managing director at Berkshire Capital who specializes in the sale of investment firms.
“They get a window on the U.S. hedge fund and investment industry,” Mr. Gooden said. “They understand how the markets are moving ahead of time and they get a view on our markets,” he said, adding that for many conglomerates that have investments in other sectors in the United States, this information can be quite valuable.
Yet even as interested buyers are welcomed by the industry, they can also bring unwanted headlines, particularly when a largely unknown Chinese buyer shows up. When China’s Anbang Insurance Group set out on a buying spree, it stirred up concerns about the insurer’s ties to China’s top leadership. Wu Xiaohui, the chairman of Anbang, which has looked at some American investment firms, is married to the granddaughter of Deng Xiaoping, China’s former leader.
More recently, HNA’s deal with SkyBridge raised eyebrows because of its own ties to the Chinese Communist Party, ultimately helping to end Mr. Scaramucci’s bid to become a top adviser to President Trump.
US investments, China, American jobs