In 2015, 42 hedge fund deals were either closed or were announced globally. This is much more than the 32 transactions which had closed in 2014. This was reported in the 4th edition of M&A review of the hedge fund industry by Madison Street Capital.
Even the transaction volume was nearly 27% higher in 2015 than in 2014 as reported by AUM. There was a wave of transactions that took place during the fourth quarter of 2015 which helped to create this momentum. Hence 2016 is being considered as a record year with regard to the hedge fund M&A transactions.
The reports suggest that the assets of the hedge fund industry are high even though 2015 had seen a mediocre performance in the hedge fund strategies. This is why institutional investors are now increasingly focusing towards allocating in alternative asset management as they hope to achieve much higher returns that can match the rising liabilities. This is why the smaller hedge fund managers are trying hard to attract new capital. This has forced them to operate much below their optimal capacity levels. The managers have to incur high operational costs this way. Meanwhile, they have to face downward pressure on their fees too. All these factors have resulted in the hedge fund managers seeking strategic alternatives in order to enhance returns.
This is why the Madison Street Capital reputation is at stake when they forecast about the deal environment for this industry. Madison Street Capital feels that the hedge fund industry was strong in 2015. It is going to become even stronger in 2016.
A huge variety of deal mechanisms is going to be used for accommodating the buyers as well as sellers. This is where Madison Street Capital talks about traditional M&A, as well as transactions being structured in the form of seed or incubator deals. Next are the revenue-share stakes, besides the PE stakes. There will be PE bolt-ons too besides others.
The hedge fund industry is highly fragmented. But Madison Street Capital forecasts that it will continue with its consolidation. This will be in the form of opportunistic partnerships. These would be able to bridge distribution and the product offering.
This way Madison Street Capital is forecasting a lot of growth in the hedge fund sector. This will be bringing forth a lot of high-value returns. Hence this sector is open to a lot of speculation in 2016.
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