Stenham in deal to buy rival Montier

Stenham Asset Management, the $3bn London-based fund of hedge funds group, has signed a deal to buy rival firm Montier Partners in the latest move towards consolidation in the $700bn industry.

The combined group will have $3.5bn in assets under management, making it one of the UK's larger fund of funds businesses.

Many funds of hedge funds - which invest client money in a selected portfolio of hedge fund managers - have been hit particularly hard by the financial crisis and a pullback of investor capital from the hedge fund industry. Consolidation - particularly among smaller managers - has been long anticipated. The deal was agreed last week.

Montier Partners is one of the oldest fund of fund managers in Europe, having been set up in 1966 to manage investments in hedge fund portfolios on behalf of family offices and wealthy individuals. Dominique Montier, the fund's founding partner, will join the combined group's management committee alongside Montier chief executive Jeremy Alun-Jones, who will become group managing director. Stenham's Kevin Arenson will remain in place as chief investment officer.

Like Montier, Stenham began managing money as a family office before expanding to accommodate investments from institutional investors such as pension funds and charities.

Unlike many peers, both groups have performed well through the financial crisis.

Between August 2007 and March 2009, Stenham's flagship Universal fund fell by 0.81 per cent. The fund has averaged an annual return of 9.21 per cent since its launch in 1992.

According to Hedge Fund Research, the typical fund of funds underperformed the average hedge fund.

In 2008, the industry's worst year on record, the average hedge fund lost 19.03 per cent, while the average fund of funds lost 21.37 per cent.

Last week, the Luxembourg-based bank Sal Oppenheim - itself recently acquired by Deutsche Bank - agreed to sell Altigefi, its fund of funds business, to French rival Olympia Capital Management.

Olympia was once one of the fund of fund industries larger players, with more than $5bn under management, but it has struggled to replace money redeemed by clients since late 2008 and currently has an estimated $2.2bn under management. In a statement, Olympia chief executive Laurent Dupeyron said: "We will continue to explore these types of consolidation opportunities when they arise."

Other notable acquisitions recently include single-manager Cheyne Capital's acquisition of fund of funds Altedge last year and Swiss fund of funds group Gottex's takeover of Constellar Capital in January.

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