JP Morgan Takes Majority Hedge Fund Position

September 27, 2004 ( - In a move that further signals a shift away from cottage industry and into the mainstream for hedge funds, JP Morgan Chase & Company has agreed to purchase a majority claim in the $7-billion hedge fund Highbridge Capital Management.

The strategic partnership between the New York-based hedge fund and the $1.2-trillion asset manager, announced Monday, will see JP Morgan holding a majority interest in the fund while allowing the fund to remain as a separate entity under founders Glenn Dubin and Henry Swieca. The partnership is subject to the completion of documentation and regulatory approval, the groups said in a press release.

For JP Morgan Chase, the deal provides a bigger slice of the investment strategy that is increasingly attractive to its clients. JP Morgan Chase already has $3 billion of client money in its own hedge funds that operate in Europe and Asia, as well as a fund of funds that has $8 billion in assets under management.

JP Morgan’s move brings further credibility to a sector that until recently had been seen as a cottage industry for wealthier clientele. Despite the high management fees and even higher performance cuts that hedge fund managers usually take, the industry has recently been seen as more mainstream and acceptable to institutional investors yearning for the high returns commonly associated with such funds.

“There will be many more such sales,” said Marco Masotti, co-head of the investment-funds group at law firm Paul Weiss Rifkind Wharton & Garrison LLP, to the Wall Street Journal. “Hedge funds have been so enormously profitable. Now they want to be organized in a way that makes selling their business down the road possible.” Besides JP Morgan, Citigroup is another major player entering the hedge fund arena. The Journal reported that Citigroup is in the midst of building a hedge fund platform with assets under management of between $10 and $20 billion, including $2 billion of the bank’s money.

Highbridge, formed in 1992 by Dubin and Swieca, does not come cheap for investors. Charging management fees on its flagship multi-strategy fund on the upper end of the spectrum (2%), Highbridge can expect to take in $140 million per year from this cut alone. This year it was up 4% to 5% net of fees, according to the Journal. It utilizes seven strategies to garner returns: global convertible arbitrage, event-driven equity arbitrage, statistical arbitrage, structured private investment, European special situations, classic long/short equity, and special opportunities.