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CAPITAL MARKETS

Funds seek long-term capital for management

For the funds, there are lots of advantages: diversification of funding sources; the ability to invest in less-liquid opportunities; and the power to raise more AUM. But do investors understand what they are buying? Helen Avery reports.

HEDGE FUND MANAGERS are increasingly looking to the public markets as a source of long-term capital. Citadel Investment Group, a $12 billion Chicago-based hedge fund, sold $500 million of five-year notes in December off its public MTN programme. Alternatives house Fortress Investment Group, which manages $9.4 billion in hedge funds, floated an 8.6% stake in the management company on the New York Stock Exchange in February, raising about $685 million. And hedge fund manager Brevan Howard, which has more than $11 billion in hedge fund assets, raised €770 million when it floated a single-strategy fund on the London Stock Exchange in March.

The three different methods of raising capital via the public markets have drawn comments from all corners of the financial industry. Why should hedge funds turn to the public markets if they can raise money from direct investors such as institutions and high-net-worth clients? How are the banks involved in launching these deals able to value this unique and new type of capital raiser? And why would investors choose to access hedge funds in such a way, opening themselves up to market exposure?

Issuing debt

Both Man Group and Citadel have raised capital in the public debt market.

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