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Private equity firm acquires majority stake in hedge fund platform PCE Investors

Canadian private equity firm Ubequity Capital Partners has acquired a majority stake in PCE Investors, an infrastructure platform for hedge fund managers, from its previous owner, the brok

Canadian private equity firm Ubequity Capital Partners has acquired a majority stake in PCE Investors, an infrastructure platform for hedge fund managers, from its previous owner, the brokerage and trading services provider Schneider Group, with the aim of expanding its scale and scope of PCE Investors’ activities in the UK and abroad.

PCE Investors, which has 14 staff, was launched two years ago and currently oversees assets of USD1.4bn in 17 funds managed by 13 investment teams. Ubequity first made contact with the firm in February this year made a first official approach in the spring. The terms of the acquisition have not been disclosed.

The firm’s founder and chief executive, Chris Day, says its business model differs from that of other firms that offer support services to hedge funds because it is remunerated through a 15 per cent share of the managers’ annual revenues, and does not demand stakes in the investment managers it supports.

However, Day says the firm is planning to launch a seeder fund of hedge funds in the second quarter of 2008 with at least USD100m in capital that will invest directly in the funds of managers using the platform.

According to George Cadbury, a manager in Toronto-based Ubequity’s London office, it plans to inject capital; to support an expansion of PCE Investors’ facilities in London’s West End and for an expansion of marketing efforts – up to now growth has been driven largely by word of mouth – as well as to roll out its business model in other jurisdictions.

Toronto is one of the centres earmarked for development of the business, as well as New York, where PCE Investors already has full Securities and Exchange Commission registration and is looking to put in place a joint venture, and Switzerland.

Cadbury and Day say demand for PCE Investors’ services, which include regulatory reporting, compliance, risk management, operations and IT support as well as marketing and capital-raising, is being driven by the growth in demand for hedge funds from institutional investors who are unwilling to invest with managers that lack a solid operational structure.

‘Managers may run a USD10m fund, but they have all the tools afforded by a USD1.4bn business,’ Day says.

Arguing that that PCE Investors ‘leaves managers to their own devices’ and does not dictate the use of particular prime brokers or other service providers, he says the revenue-sharing model aligns the interests of PCE with those of the managers and of the investors in the underlying funds.

‘We gain from assets under management and good performance, and we provide the environment for hedge fund managers to deliver that,’ he says. ‘Unlike some models in the US, where fees comes from high transaction charges, our interests are in keeping transaction costs as low as possible.’

Day say a start-up hedge fund manager coming from an existing regulated environment – many of PCE’s managers come from the proprietary trading desks of investment banks – can get up and running in six to eight weeks.

‘The cost of that will be around USD50,000,’ Cadbury says. ‘That compares with potentially 12 months otherwise and costs, including meeting capital adequacy requirements, of as much as USD1m.’

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