Cayman hedge fund to buy its marketing firm

Absolute Capital Management (ACM), a Cayman Islands-based hedge fund manager run by Donegal man Sean Ewing, has agreed to buy the company that markets its funds to investors for as much as €15.7 million in new shares.

Absolute Capital, which manages about €955 million in absolute returns funds for wealthy individuals, said the purchase price for TCA Group would be subject to a range of criteria, including the stipulation that key executives of TCA stay with the company.

The acquisition price is a multiple of 4.5 times TCA's earnings forecast for 2006 and 2.9 times its 2007 target.

The takeover of TCA, also located in the Cayman Islands, will increase the distribution of Absolute Capital's funds and consolidate most of the fund manager's third-party introduction fees. By the end of April, TCA had introduced assets worth €447 million to six fund managers.

"It will bring in-house sales, marketing and distribution capabilities to Absolute Capital that were previously outsourced," said Mr Ewing, the fund manager's chief executive.

"TCA also has the ability to grow aggressively through existing and future relationships with other managers."

Absolute Capital aims to achieve absolute returns on its funds, which are listed on the Irish Stock Exchange.

Thousands of investors have recently been pouring money into these funds, lured by the promise of attractive profits even in falling markets.

Absolute or target return funds began to spring up following the introduction of new "Ucits III" European regulations in 2004. These regulations allowed managers to introduce more sophisticated financial instruments such as derivatives into their portfolios and therefore protect against downside risk.

Absolute Capital listed its shares on London's Alternative Investment Market (Aim) in March in an effort to widen its customer base, particularly within the funds of funds market, which invest in other funds.

The company plans to apply "shortly" for the admission of 2.5 million new shares, the initial payment for TCA, to the Aim.

Mr Ewing, who was born in Dublin but grew up in Donegal and Sligo, became a multimillionaire in 2000 when he sold another fund management company for £30 million sterling (€44 million).