BlackRock Inc. announced it will buy the hedge fund manager R3 Capital Management LLC, which runs $1.5 billion in credit strategies.
In an internal memo, BlackRock said R3 president and chief executive Rick Rieder, a former executive of Lehman Brothers, will join BlackRock as a managing director and head of the fixed-income alternative investments team. He will continue to manage R3.
Lehman was an investor in R3 and sold its stake as part of its bankruptcy last year.
R3, which at its peak had more than $2 billion of total assets, including managed accounts, lost about 30% last year in its flagship R3 Capital Partners fund after it started trading in May, according to a person familiar with the firm.
Its executives decided that continued uncertainty in the markets made it risky to try to remain independent, according to a person familiar with the matter.
BlackRock was an original investor in R3, so it knew the partners and their strategy before negotiations started. Roughly $1.5 billion in positions managed by R3 are being rolled into BlackRock, and senior R3 executives are taking jobs at the bigger firm. Little cash will change hands in the deal, which has been agreed upon but has not closed, the person said. Once the deal is complete, BlackRock will manage R3's portfolio, BlackRock said.