In an effort to build its hedge fund offering and leverage on the fund-of-funds market consolidation, Wells Fargo & Co. (WFC - Analyst Report) acquired a minority stake in hedge fund firm, Rock Creek Group. The financial terms of the deal were, however, not made public. The acquisition in particular, was made by Wells Fargo Asset Management unit through its Affiliated Managers Division.
Established in 2002, Rock Creek boasts approximately $7 billion in assets under management. This investment and advisory firm, focused on investing in multi-manager portfolios of alternative investments as well as in emerging markets, is one of the largest fund of hedge funds in the U.S. with 100% institutional assets.
Rock Creek was founded by Afsaneh Beschloss, who currently serves as its President and Chief Executive Officer. Formerly, she chaired the position of Treasurer and Chief Investment Officer of the World Bank and was involved in building the alternative investments and private equity investments of the World Bank. Following this deal, she will continue leading the 50-member Rock Creek team.
While Wells Fargo will have a minority stake in Rock Creek, the majority will continue to be held by the latter’s management team as well as its employees. However, in the following years, Wells Fargo may further step up its investment in Rock Creek and enhance its stake size.
The Industry Scenario
As a matter of fact, with declining margins and increased withdrawals, fund-of-funds market is witnessing enhanced consolidation. Earlier this year, Franklin Resources Inc.’s (BEN - Analyst Report) purchased a majority stake in K2 Advisors, buyout of Prisma Capital Partners by private-equity group, Kohlberg Kravis Roberts & Co. (KKR - Snapshot Report), while Man Strategic Holdings plc’s (MNGPY) acquired FRM Holdings Limited.
Recently, Legg Mason, Inc. (LM - Analyst Report) and its affiliate, Permal Group, announced the acquisition of London-based fund-of-hedge-funds firm - Fauchier Partners from BNP Paribas Investment Partners, an asset management unit of BNP Paribas SA (BNPQY).
We are encouraged with this strategic investment of Wells Fargo in Rock Creek and expect it to be applauded by investors. Notably, the company’s growth plans have historically included several acquisitions, Wachovia, being the largest addition in December 2008.
Since 2011, the company has completed a number of transactions, which include both loan portfolio purchases as well as business unit acquisitions. The company plans to expand its operations in international markets and augment its asset management business.
Wells Fargo has demonstrated its ability to assimilate local franchises, offering a wider range of products than the acquired company could have, thus increasing the number of options for the customers. This has been the driving force behind its growth in the recent years.
Wells Fargo currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. This stake acquisition is expected to benefit Wells Fargo and thereby may lead to upward earnings estimate revisions. This, in turn, could cause an upgrade in its Zacks Rank.