Aetos splits into separate RE and hedge fund businesses

A deal agreed by the senior executives of Aetos Capital’s real estate and hedge fund of funds businesses sees the two businesses go their separate ways, finally bringing to a close founder James Allwin’s original vision of a diversified alternative investment company.

Aetos Capital, the alternative investment management business launched in 1999 by the late James Allwin, has been formally split by its current senior executives into two separate businesses.

PERE has learned that last month, the heads of the New York-based firm’s two investment platforms  – one with an Asian real estate focus, the other with a hedge fund of funds focus – concluded a transaction resulting in them becoming financially independent for the first time since the former Morgan Stanley veteran launched the business.

Although the transaction crystallized last month the new-look structure has in fact been on the cards since Allwin’s death in 2007 and the firm’s investors are understood to have been aware of the planned split for some time.

Both platforms will retain the Aetos name. However, the real estate business, which was started by chief executive officer Scott Kelley in 2001, has adopted the two names Aetos Capital Asia and Aetos Capital Real Estate and will continue to operate out New York, Tokyo, Beijing and Hong Kong. The hedge fund of funds business, which commenced later that same year and is led by co-presidents Anne Casscells and Michael Klein, has retained the name Aetos Capital and Aetos Alternatives Management and will keep a presence in New York and Menlo Park, California.

When contacted by PERE, Kelley declined to divulge financial details of the transaction but he confirmed that it had resulted in Allwin’s estate relinquishing any financial interest in the real estate company. Now, the real estate business is fully-owned by its executives with Kelley owning a majority share.

He said that, despite the recent split, the two businesses had effectively already been operating separately from one another since Allwin’s passing. While they shared the New York office, the majority of the hedge fund of funds staff actually operated from Menlo Park.

Kelley said: “Jim’s original concept was to have several different alternative businesses – hedge funds, real estate, private equity and venture capital. It looked like a diversified alternative investment company. It’s taken while to get the whole thing unwound but that vision of having a common marketing platform really died with him.”

The split, coming alongside an incoming fundraising effort by Aetos Capital Asia, ushers in something of a new chapter for the real estate business. PERE revealed last week how the firm had just hit the capital raising trail in an effort to corral $1 billion for a Japan-heavy investment program. Last month, the firm launched Aetos Capital Asia V, the fifth in its series of opportunity real estate funds for Asia. Kelley declined to discuss the firm’s capital raising activities but spoke enthusiastically about its future in the private equity real estate space.

In preparation for another fund, Aetos Capital Asia has undergone a senior personnel shuffle. While Japanese acquisitions head Daisuke Hayashi left last month to pursue other opportunities, he has been replaced in-house by Hiroyuki Tanaka. The firm has also just hired Shinichiro No as a director responsible for asset management from JP Morgan. Their efforts will be bolstered by a switch of focus by head of asset management and valuations Jon Awong, who previously had shared his time in Japan with a focus on China from Aetos’ Hong Kong office. For Aetos’ fifth fund, China is expected to play less of a part in the firm’s investment strategy.

Kelley said currently the firm’s Japanese division has 60 staff, not including staff employed by its portfolio companies. He said: “We’ve been adding serious resources to Japan. We’ve been fortunate not to have had much turnover.  The overall message is we’ve been investing in people.”