When Man Group’s then-CEO Stanley Fink got together with Emmanuel Roman, co-CEO of GLG Partners, in late 2006, the main topic on the agenda was Man’s extensive and long-standing investments in GLG’s hedge funds. Yet the conversation, which drew in other executives of both firms, quickly evolved into an exploration of how the two big British hedge funds might work together and possibly merge. But Fink, who was being treated for a benign brain tumor, stepped down as CEO early in 2007, and the merger talks broke off.
Several months later GLG, still anxious to unlock value, tried a different tack: It orchestrated a reverse merger with Freedom Acquisition Holdings, a shell company on the American Stock Exchange; dubbed the combined entity GLG Partners; and shifted the listing to the New York Stock Exchange. GLG’s hope was to use the stock — which surged from about $11 to nearly $15 — as currency to attract and retain top talent as well as enrich two of the firm’s founders, Noam Gottesman and Pierre Lagrange, along with other top executives.
Soon, however, the financial crisis rocked GLG. By the end of 2008, its assets had plummeted 40 percent, to $15 billion, because of lousy performance and heavy client redemptions (triggered in part by the departure of a star portfolio manager, Greg Coffey). GLG’s stock sank to about $2 as of December 2008 and remained depressed.
Meanwhile, over at Man, which was also publicly traded, albeit in London, things were not much better on the stock front. As of March 2, 2009, its shares had plunged nearly 80 percent from their 2007 high of 724 pence (U.S. $14.55) to 159 pence.
Thus, when GLG’s senior officials sat down in London this February with their counterparts from Man to review the two firms’ mutual investments — Man’s in GLG’s funds and GLG’s in Man’s stock — they concluded that the two firms would be better off if they combined.
In May, Man agreed to acquire GLG in a $1.6 billion takeover — the largest ever between hedge fund firms.
“The strategic fit is very strong,” declared Gottesman at the time. The GLG chairman and co-CEO and his fellow GLG founder Lagrange will collect at least $570 million. The pair and co-CEO Roman have agreed to stay on for at least three years after the deal’s completion, which is expected this fall.
The merger creates a formidable firm with $63 billion in assets, including more than $45 billion in single-manager hedge fund strategies. As of March 31, Man had $39 billion and GLG $23.7 billion (in part reflecting GLG’s acquisition of Société Générale’s $8 billion-in-assets U.K. asset management arm in late 2008).
Man has a strong impetus to diversify. The firm is best known for its $21 billion in managed-futures products — so-called black box trading — but they haven’t been doing so well of late. Man’s flagship fund, AHL Diversified, fell 17 percent last year as stock markets soared and was up only 2.3 percent through May. In addition, Man brings $3.4 billion in credit products and nearly $15 billion in multimanager products to the combination. For its part, GLG has more than $10 billion in long-short equity hedge funds, credit funds, macro funds and emerging-markets funds, along with some $12 billion in long-only funds.
The two firms say that ultimately they’re merging for three reasons: scale, complementary products and Man’s strong distribution. As the alternative-investing industry grows more competitive, size will matter, say the firms’ executives, adding that so will better-performing products and a wide global distribution network. Nonetheless, both firms’ U.S. operations fall short of ideal. Indeed, Gottesman has moved to New York to build up GLG’s business there, and Roman sees U.S. investors as being in “better shape” to return to hedge funds. He plans to play a key role in integrating the two firms. “I am going to work 365 days a year,” says Roman, who will make millions off the deal as a GLG principal. “I don’t do half time.”
