Credit Suisse Group did not need to invest in a hedge fund manager in order to broaden its product offerings.
But the bank's asset management division did agree on Sept. 14 to buy a $425 million minority stake in York Capital Management, a New York global hedge fund manager. That decision grew from a longer-term strategic view, according to Ravi Singh, a Credit Suisse managing director in its asset management division and head of alternative investments globally.
"For some products, all you may need is a distribution arrangement," he said. "With York, we feel we can not only have good products, but also cooperate on future products, and that is something that requires a greater degree of interaction."
York, which was founded 19 years ago, manages about $14 billion for institutions, endowments, foundations, funds of funds, wealthy individuals and their families. It has offices in New York, Washington, London and Hong Kong.
The stake purchase fits within Credit Suisse's asset management strategy of focusing on alternative investments, asset allocation and emerging markets business globally, Singh said.
"There has been a paradigm shift in the marketplace post 2008 — you really see a move toward alternative investing," he said. "It's critical for us to have a diverse alternative investment platform for our clients."
Credit Suisse, whose asset management business had $392 billion of assets under management on June 30, may not reap the full potential of the deal until the economic recovery has strengthened, said Denise Valentine, senior analyst at Aite Group.
Many institutional investors have been hurt by hedge fund blowups in recent years, and while a place in their portfolio is set aside for hedge funds, it may not be completely filled immediately, she said.
"Certain entities were burned, and they have a more temperate implementation plan," Valentine said. "Credit Suisse have basically positioned themselves for the next rebound."
Credit Suisse selected York as a partnership and investment target because of factors like its multistrategy approach, its global presence and its consistency, Singh said. The company has only had negative returns in two of its 19 years, he said.
"They're not just a bunch of traders and investment professionals," he said. "They've been very thoughtful and mature in terms of growing their business."
York will operate independently, led by its chief executive, Jamie Dinan, and its chief investment officer, Dan Schwartz, according to Credit Suisse. The bank said that it will pay $425 million up front for its stake in York, and that there will be earn-out payments based on York's financial performance over five years.
While the newly adopted financial reform law limits banks' investment in hedge funds, Credit Suisse said it has not invested in York's funds, but rather in the management company.
York is known for what's called event-driven investing. That approach involves investing in companies that may be involved in mergers or in bankruptcy or other kinds of reorganization.
Credit Suisse does not have a distribution goal for the York arrangement, Singh said. "We don't think that's the right way to think about this strategically," he said. The goal, Singh said, is to "credibly position them on the platform, work forward through business cycles with good returns for investors and create good products for investors."
The partnership with York is the latest move by Credit Suisse to offer its clients more product selection. In August, Credit Suisse announced 13 new exchange-traded funds, most of which focus on emerging markets.
Shortly thereafter, 45 ETFs issued by the company were admitted to trading through the London Stock Exchange Group. Credit Suisse has said it aims to become Europe's leading ETF provider. Its ETF assets have nearly doubled over the past year; they stood at $11.8 billion at August 31. Also in August, Credit Suisse unveiled plans to launch a debt fund of more than $1 billion aimed at investing in debt from emerging markets.
As for the next step in Credit Suisse's asset management growth strategy, Singh said it continues "to look at every single space we think that credibly we need to be in."
Credit Suisse's asset management business has offices in 19 countries. It includes an alternative investments franchise, which provides investments such as hedge funds, ETFs, private equity and real estate. The company also offers solutions for private clients, including discretionary portfolios, through its private banking unit.