Blackstone Cancels Plan for Asian Event-Driven Fund

Date: Friday, May 15, 2009
Author: Bei Hu, Bloomberg

Blackstone Group LP, the world’s biggest buyout company, canceled a plan to start a hedge fund that initially aimed to invest as much as $1 billion in Asian companies affected by events such as mergers and reorganizations.

Blackstone decided not to proceed with the Asian event- driven fund “after a review of the market environment and our strategic priorities globally,” New York-based Blackstone spokesman Peter Rose said in an e-mail. The fund was to be managed by Blackstone A.M.N. Advisors.

Most of about 17 A.M.N. team members, including Chief Investment Officer Aaron Nieman, left after the March decision, said four people familiar with the matter, declining to be identified because the information isn’t public. The rest have been transferred to other Blackstone departments, they said. Rose declined to comment on specific personnel.

Global hedge fund assets slumped 31 percent by March from a mid-2008 peak as a result of the worst average annual return and record investor redemptions, according to Chicago-based Hedge Fund Research Inc. The number of hedge funds and funds of hedge funds fell for the first time in at least 19 years in 2008, the research firm’s data showed.

“Capital raising in these tight times, especially for funds with longer lockups, is very, very tough no matter how big you are and how good your story is,” said Paul Smith, a Hong Kong-based director at Triple A Partners Ltd., which provides startup capital to hedge funds. “Investors want transparency and liquidity and these are hard to provide in an event-driven fund.”

Scaling Back

New York-based Blackstone has been scaling back its hedge fund operations in the region, joining peers such as Citadel Investment Group LLC and Och-Ziff Capital Management Group LLC to focus on their biggest markets. Blackstone’s GSO Capital Partners LP unit, a manager of credit hedge funds, shut down its Asia investment desk less than four months after its opening in September, people familiar with the matter said in January.

“In this market environment where both capital and people are constrained, it is especially important to be disciplined in where you allocate resources to achieve the greatest return,” Rose said in the e-mail. GSO decided to withdraw from Asia to concentrate in Europe and U.S., where it saw greater opportunities in the short- and medium-term, he added.

Hedge Fund Push

Blackstone Chairman Stephen Schwarzman has pushed the firm he founded with Peter G. Peterson in 1985 deeper into hedge funds and merger advice to offset the decline in private-equity deals.

Blackstone announced the hiring of Nieman in May last year to start what was then named Blackstone Altius Advisors. The unit, later renamed A.M.N., planned to start its first Asia- focused event-driven fund on Oct. 1.

A.M.N. targeted as much as $1 billion for the fund, including $150 million committed by Blackstone and its employees over the first three months, said documents sent to investors in September.

The plan was delayed and the fundraising target reduced after the market downturn made it harder for hedge funds to raise money.

Funds seeking to profit from “corporate stress and balance sheet dysfunction” may indeed find better opportunities in U.S. and Europe, said Peter Douglas, principal of Singapore-based hedge fund consulting firm GFIA Pte. “Asia is, relative to the developed world, in much better shape.”

Asian event-driven investments may become more profitable later this and next year with rising corporate defaults, bankruptcies and reorganizations, Triple A’s Smith said.

Fewer New Funds

Globally, hedge fund starts dropped to 659 last year, the slowest since 2000, HFR said. By contrast, hedge fund liquidations jumped more than 73 percent to 1,471 in 2008 over a year earlier. Investors pulled a record $155 billion out of the industry last year and another $103 billion in the first quarter, HFR data showed.

In 2008, 75 new Asia-focused hedge funds raised a combined $3 billion, or $40 million each on average, according to London- based publication HedgeFund Intelligence. A year earlier, 116 such funds brought in $7.8 billion, or $67.5 million each.

Nieman and Kevin Cho, an A.M.N. senior analyst, are rejoining former employer SAC Capital Advisors LP in its Sigma Capital Management unit, said Jonathan Gasthalter, a New York- based spokesman for the hedge fund manager founded by billionaire Stephen Cohen.

Nieman was a portfolio manager and managing director at SAC, having built its first Asia-Pacific-focused event-driven fund, before leaving to join Blackstone, said the A.M.N. documents.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net