Looking to gain investment expertise and become financial conglomerates, Asian technology and industrial giants are snapping up Western investment firms.
So far in 2017, Japan’s SoftBank and Chinese firm HNA Group have each acquired major New York-based investment firms. Masayoshi Son, Founder and CEO of SoftBank, a technology and telecommunications conglomerate, has said he wants to create a “Berkshire Hathaway of the tech industry”. In February his company bought Fortress Investment Group, a big American private equity firm that oversees about $70 billion in assets.
HNA, a Chinese conglomerate with interests in aviation and shipping as well as cloud computing and hotels, purchased a piece of New York hedge fund firm SkyBridge Capital in January. The firm described the acquisition as part of a strategy to “build a global asset management business.” The deal came on the heels of HNA’s purchase of a New Zealand investment firm. It has also shown interest in acquiring a British insurer along with its asset management unit.
Meanwhile selling has become an appealing option for many hedge fund and private equity firms. As the New York Times reports, “Years of disappointing performance and cheaper index-tracking alternatives have emerged as a challenge to what was once a lucrative, high-fee business.” Fund of funds businesses such as SkyBridge Capital, which allow investors to spread their money across multiple hedge funds, have had a particularly hard time.
“The fund of funds industry is facing a lot more challenges than it ever has”, said Michael Rees, head of Dyal Capital Partners. Last year several hedge fund firms closed and returned money to investors due to market conditions. Fortress Investment Group, for one, was forced to close a $1.6 billion flagship hedge fund last year amidst heavy losses and investor withdrawals.
Consequently valuations have dropped, offering deal-hungry Asian conglomerates the opportunity to target acquisitions and diversify their holdings at bargain prices. Despite concerns about their business models, investment firms like Fortress and SkyBridge bring with them new distribution networks and access to wealthy investors, as well as investment expertise.
Indeed, owning a slice of the US investment industry gives firms like HNA and SoftBank access to information they would not otherwise have, says Ted J. Gooden, a Managing Director at Berkshire Capital, an American private equity firm. “They get a window on the U.S. hedge fund and investment industry”, Gooden said. “They understand how the markets are moving ahead of time and they get a view on our markets”.
