Wells Fargo & Co., the biggest U.S. bank by market value, bought a stake in Rock Creek Group LP to provide more hedge-fund offerings to clients amid a push to double the asset-management unit within seven years.
The lender purchased a 35 percent stake in the Washington-based firm and has an option to make a controlling investment over time, Wells Fargo asset-management chief Mike Niedermeyer said in an interview. Rock Creek oversees about $7 billion as a fund-of-hedge-fund business, giving clients access to handpicked hedge funds and emerging markets, the bank said in a statement, which didn’t disclose financial terms.
“We view this as one of the fastest-growing segments in the asset-management business,” said Niedermeyer, whose business manages $450 billion for customers at San Francisco- based Wells Fargo. “While it’s of a greater interest to larger clients, it’s quickly becoming a larger area of focus for middle-size and smaller endowments, and state pension funds.”
Chief Executive Officer John Stumpf, 59, has sought to expand businesses that are less likely to be hampered by new global banking regulations and record-low interest rates. In April, Wells Fargo announced it would buy Merlin Securities LLC, a prime brokerage that caters to hedge funds and other clients with as much as $2 billion in assets.
Client Needs
“Our clients have expressed their desire for increased alternative investment solutions, and this partnership allows us to meet those needs,” Niedermeyer said in the statement.
Rock Creek, in addition to picking hedge funds, also has tools that allow clients to analyze portfolios and stress-test investments, Niedermeyer said in the interview. The firm has about 50 employees and is run by Afsaneh Mashayekhi Beschloss, a former World Bank chief investment officer.
Wells Fargo made the investment through a unit within asset management that groups together boutique asset managers and lets them keep their investment processes independent, according to the statement. The unit is run by Tom Hoops.
Wells Fargo will double its asset-management unit within seven years by expanding in international markets and investing in more alternative-asset funds, Niedermeyer said in an interview earlier this year when the unit managed $444 billion.
The purchase of the Rock Creek stake shows Wells Fargo “wetting their feet” in alternative-asset managers, said Karl D’Cunha, senior managing director at Madison Street Capital, a Chicago-based investment bank. Wells Fargo also owns a minority stake in Overland Advisors LLC, a hedge fund that was started in January 2010 when the bank decided to segregate a proprietary- trading group.
Alternative Assets
“They have the capacity to be completely invested in all sorts of alternative-asset managers but they are very selective and choosy,” D’Cunha said in a phone interview. “This is a conservative way to go about it.”
Rock Creek has grown assets under management by 89 percent since the end of 2008, when the firm had $3.7 billion of investors’ money, according to Niedermeyer. Assets could grow to more than $10 billion by the end of 2013, D’Cunha said.
In 2010, Rock Creek received $200 million to invest for the New York state pension fund, the third-largest in the U.S. at the time. The firm lost money for New Jersey’s pension system in 2006 with an investment in Amaranth Advisors LLC, a hedge fund that imploded with wrong-way bets on natural gas.
Beschloss, who is married to presidential historian Michael Beschloss, and other Rock Creek employees will continue to own 65 percent of the firm. She left the World Bank in 2001 after managing $65 billion in assets and $160 billion in notional derivatives exposure, according to the statement.
All of Rock Creek’s clients are qualified institutional investors, Niedermeyer said. Wells Fargo eventually may seek to make its strategies available to retail investors, he said.
Wells Fargo asset management caters to institutional clients such as pensions and endowments, sovereign-wealth funds and companies. It also offers mutual funds for retail investors and is separate from the bank’s wealth-management unit, which houses a retail brokerage and manages funds for individuals.
