Earlier this week,
Wells Fargo
(
WFC
) announced that it has acquired a 35% stake in The Rock Creek
Group - one of the largest fund of hedge funds in the
U.S. ((
Wells Fargo Asset Management Makes a Strategic
Investment in the Rock Creek Group
, Wells Fargo Press Releases, Dec 18 2012)) The move is in line
with Wells Fargo's decision to double its asset management business
over the next seven years, both organically by expanding
internationally and inorganically by investing in alternative
investment funds (see
Wells Fargo Set To Double Its Asset Management Business
). As of now, there is expected to be no change in Rock Creek at
any level as a result of the deal. Wells Fargo does add that it may
increase its stake in the company over the coming years.
We maintain a $38 price estimate for Wells Fargo's stock,
which is about 10% above the current market price.
See our complete analysis of Wells Fargo here
Since 2008, when Wells Fargo acquired Wachovia and along
with it a reputed asset management business, the bank has made a
series of investments to implement a multi-boutique business
model for the business. Most notably, the bank acquired Galliard
Capital Management (stable value manager), Golden Capital
Management (quantitative manager) and EverKey Global Partners
(global equity manager) over the years to be able to address the
varied investment requirements of its clients (see Wells Fargo
Expands Asset Mgmt Offering, 20% of Stock Value).
The strategic investment in Rock Creek expands Wells Fargo's
hedge fund offerings to new and existing clients as the deal will
help the bank capitalize on Rock Creek's expertise as a fund of
hedge funds, backed by its proprietary analytics platform,
Rock Creek Solutions. Rock Creed manages about $7 billion in
assets entirely invested by institutional clients. This compare to
around $450 billion in retail & institutional investor asset
managed by Wells Fargo Asset Management (
WFAM
).
While the deal for a minority stake in Rock Creek will not
accrue to WFAM's asset base as of now, we believe that Wells Fargo
will raise its stake to a majority over coming years, reporting
Rock Creek's revenues along with its own.
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