After alternative investments suffered through a less than stellar second quarter, Credit Suisse Group Inc. has announced the merger of its hedge fund units onto one platform.
Credit Suisse Asset Management and Credit Suisse First Boston merged to form a $6 billion, multimanager hedge fund platform, the company said on Thursday. The new unit has one of the largest pools of alternative investment assets in the United States. It will be run under Credit Suisse Asset Management, pooling $3.5 billion from the former and $2.5 billion from Credit Suisse First Boston.
Thomas Gimbel, who was a managing director at Credit Suisse Asset Management, and Jim Vos, who was a managing director at Credit Suisse First Boston, are to run the new group. Alain DeCoster, who co-managed Credit Suisse Asset Management's hedge funds with Mr. Gimbel, has resigned and will leave at the end of this month, the company said.
Mr. Gimbel said Credit Suisse chose to pool its hedge assets because, as the number of companies offering alternative investments grows, smaller hedge fund companies cannot compete.
"It became a critical-mass issue," Mr. Gimbel said. "In this industry it has become more and more difficult for smaller entities to be competitive. From a systems standpoint, and a research standpoint, and a due diligence standpoint, it requires more and more resources to compete."
"There is a dynamic in this business that requires substantial capabilities and resources that just lends itself to a bigger unit," he added.
Credit Suisse's decision came after investments in hedge funds fell by $1 billion in the second quarter from the first-quarter volume, according to data from Tremont's Tass Research. Hedge funds had $4.57 billion of net inflows in the second quarter, compared with $5.6 billion in the first quarter, the research firm's quarterly survey said.
"Investors are just not diving to alternative investments the way they were 12 months ago," said Burton Greenwald, a Philadelphia-based analyst. "Firms have to focus their resources closely."
Patrick Kelly, the director of manager research at Rye, N.Y.-based Tremont, said the data indicate that investors continue to show significant interest in hedge funds even as they pull money out of mutual funds.
"All [hedge fund] strategies had positive net inflows even though investors showed reluctance to allocate assets to some categories like event-driven and fixed-income arbitrage," Mr. Kelly said. "Investors were clearly steering toward strategies that can benefit from a declining equity market, such as long/short equity and multistrategy funds that can switch their approach as market conditions warrant."
Mr. Vos said Credit Suisse's consolidation has nothing to do with shrinking profits and everything to do with growth. The company will look to distribute through multiple channels, he said, including marketers from Credit Suisse Asset Management and Credit Suisse First Boston as well as Credit Suisse's high-net-worth and private banking clients.
By having one group using one stable platform, Mr. Vos said, Credit Suisse can add to its staff and increase its alternative assets under management.
"We are adding resources by consolidating, not reducing resources," Mr. Vos said. "We are searching for additional hedge fund analysts and other individuals to add to our staff."
He added, "We want to be able to add and grow by the end of the year. … You can't do that as a small team anymore."
Mr. Gimbel said the new group would be greater than the sum of its parts. Bringing the teams together, eliminating duplicate coverage, and integrating back-office resources give Credit Suisse Asset Management the ability to dedicate more resources to each fund, he said.
"By eliminating the overlap and aggregating the groups, we become a stronger overall department," Mr. Gimbel said.
