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So much for the one-way traffic to London’s financial markets. GLG Partners, the UK-based hedge fund, is joining the race among alternative asset managers to go public. But, instead of tapping its local market, which has been a magnet for global offerings in recent years, it is heading across the Atlantic to the land of Sarbanes-Oxley and litigation risk. That is not necessarily the obvious move for a fund that has had its fair share of run-ins with regulators.
Why? One reason is brand-building. GLG is still relatively unknown in the US. If it wishes to build a bigger, enduring asset management business, it makes sense to beef up its presence on Wall Street and its ability to raise cash from the huge US investor base.
Second, the US market has so far shown a healthy appetite for such companies. Shares in Fortress Investment Group, a hedge fund and private equity group, have risen 32 per cent since it floated in February. Blackstone last week shrugged off numerous challenges to its initial public offering. It crystalised a $38bn valuation and a tidy $10bn fortune for chief executive Steve Schwarzman. So it makes sense for GLG to jump in before investors show any signs of indigestion.
Finally, GLG plans to avoid much of the hassle involved in a traditional IPO by reversing into a special purpose acquisition company (SPAC) called Freedom Acquisition Holdings. GLG, valued at about $3.4bn, could feasibly prove a blueprint for other alternative asset managers looking to cash in on the boom. After all, the US market is already littered with SPACs – in effect, blank cheque investment vehicles that raise money to invest in a single, unknown company.
London made use of its powerful position in commodities to help attract a large number of foreign IPOs in recent years. New York, however, remains the global centre for unlisted hedge funds and private equity. If the wave of alternative asset management companies going public does materialise, New York has a good opportunity to fight London for the chance to rebuild its market share.