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M&A: Minority stakes for banks

Cross-border activity to increase, say participants.

The trend of investment banks taking a stake in high-profile hedge funds continued in March. Lehman Brothers announced that it would take a 20% holding in quant house DE Shaw, which has about $29 billion in assets under management. The investment bank already has investments in hedge funds GLG Partners, Ospraie Management and Marble Bar Management. In January, Lehman also took a 20% stake in emerging markets investment manager Spinnaker Capital.

According to an investment banker who advises hedge funds in M&A activity, an increasing number of managers are enquiring about interest from investment banks. "They are asking us, where is my Nomura?" he says, referring to Nomura’s acquisition of a 15% stake in hedge fund and private equity group Fortress at the end of 2006.

David Heaton, co-head of asset management in the investment banking business at Merrill Lynch in New York, says: "The Nomura investment in Fortress has intrigued many hedge funds, just as Putnam’s investment in TH Lee caught the interest of financial sponsors a few years back. While that investment did not lead to a myriad of partnerships, we expect to see a continued flow of minority investments in hedge funds by strategic partners."