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    • ON: Wed May 7th 08:13 AM
      Commented on:
      Why Investment Banks Should Not Buy Hedge Funds
      In the case of Old Lane I almost certainly agree with the analysis. Citi overpaid for an unproven manager whose performance was mediocre at best prior to the purchase. However, I feel that there is a bit of "broad brush" syndrom in this case. While Old Lane can certainly be categorized as a failure what about other hedge fund purchases? JP Morgan has had a very positve experience after buying Highbridge in 2004 and Lehman's stakes in Avenue and GLG have also been beneficial to the bottom line for a number of years (although in the latter's case recent turnover brings future benefit into question). Ultimately the higher margins of hedge funds coupled with the marketing muscle of a bulge bracket firm are often a synergistic relationship - and the fact that i-banks overpay for businesses is systematic, not limited to hedge funds. Having said that, as an investor, the conflict of interest between growing a business and earning attractive returns makes such structures unattractive. Usually when a hedge fund is purchased its best years are behind it - or in Old Lane's case, its best months.
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