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Blackstone, Fortress Seek Hedge-Fund Takeovers After Debt Slump

Date: Thursday, May 7, 2009
Author: Pierre Paulden, Bloomberg.com

- Blackstone Group LP and Fortress Investment Group LLC are seeking to take over credit funds from managers unable to support their businesses after the value of investments fell.

There are “a lot of companies that are on the block,” Tony James, Blackstone’s president, said on a conference call yesterday with investors. New York-based Blackstone, the world’s biggest private-equity company, is “looking hard at consolidating acquisitions,” he said.

Hedge fund assets fell 37 percent to $1.2 trillion last year after record losses and investor withdrawals. Managers lost an average of 19 percent, according to data compiled by Hedge Fund Research Inc. in Chicago. High-yield, high-risk loans fell 29 percent in 2008, data from New York-based Standard & Poor’s show, reducing the fees managers collect for overseeing investments.

“There are going to be a significant amount of general partners that are experiencing trauma, where their business no longer makes economic sense,” Peter Briger, Fortress’s president, said on a call with its investors yesterday. “That’s going to be a big part of our business.”

Fortress, based in New York, was chosen by investors in hedge-funds of D.B. Zwirn & Co. last week to manage about $2 billion in assets.

Blackstone can use its stock to help it acquire struggling companies, James, 58, said. Its shares have doubled this year.

There are “a lot of alternative-asset managers that got started up in the last few years with the idea that the trees would grow to the sky,” James said. “With the assets being marked down either by redemptions or by market moves,” businesses are struggling to achieve profitability, he said.

Primus Prowling

Primus Guaranty Ltd., a Hamilton, Bermuda-based manager of $21.5 billion in credit-default swaps, is also seeking to acquire credit funds. It signed a letter of intent with a manager that specializes in leveraged loans, Primus Chief Executive Officer Tom Jasper said during its earnings call yesterday.

“We believe there will other opportunities to acquire companies, asset-management contracts and structured credit assets because of the consolidation taking place within the structured-credit markets this year,” Jasper said.

Billionaire hedge-fund manager Marc Lasry’s Avenue Capital Group is in talks to sell a division that oversees high-yield, high-risk loans. New York-based Avenue Capital, which manages $2.8 billion of leveraged loans in its collateralized debt obligation business, may sell the unit by June, Bloomberg reported last month.

To contact the reporter on this story: Pierre Paulden in New York at ppaulden@bloomberg.net