BlackRock Inc. announced yesterday it is expanding its hedge-fund business through the acquisition of HPB Management LLC, a New York fund of hedge funds manager.

HPB has just $150 million under management, primarily with wealthy individuals. But it represents BlackRock’s first foray into funds that pool investors’ money to invest in other hedge funds, a product that has a lot of appeal for first-time hedge-fund investors. Funds of funds can provide exposure to a diverse array of hedge-fund strategies for relatively small sums.

BlackRock has made several strategic deals in recent months to strengthen its equity and alternative-investment capabilities. Its fixed-income focus has allowed BlackRock to prosper during the bear market for stocks of the past three years, putting it in a strong position to acquire other companies and attract top talent. The firm also has an expertise in risk management that institutional investors are increasingly demanding from hedge funds.

Many other mutual-fund companies entering the fund-of-hedge-funds business have found it easier to acquire or team up with a specialist fund firm rather than develop the expertise to select and monitor hedge funds in-house, Reuters reports. Phoenix Cos . joined forces with Arden Asset Management, while Franklin Resources Inc. teamed up with the Auda Group, and OppenheimerFunds acquired Tremont Advisers.
BlackRock, a unit of PNC Financial Services Group Inc., has just over $273 billion under management. The planned acquisition of HPB follows that of Cyllenius Capital Management, an equity hedge fund firm, last year. BlackRock also runs a multi-strategy fixed-income hedge fund, Obsidian.

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