LONDON (HedgeWorld.com)—The popularity of the London Stock Exchange for listed funds of hedge funds is seeing BlackRock Inc., the fund manager controlled by Merrill Lynch Inc., consider launching a closed-end vehicle in the second quarter of 2008.

If the launch goes ahead, it likely would become the biggest fund of funds launch so far in 2008. Although BlackRock declined to comment on the possible size of the initial public offering, industry sources said they believe the fund manager would want to raise more than Ј200 million ($400 million) in order to make the listing process financially viable.

The new fund is to be called BlackRock Absolute Return Strategies Ltd. It would provide investors with access to BlackRock Alternative Advisors' flagship Appreciation Strategy, which has about $11 billion in assets under management and a track record stretching back over 12 years.

The flagship fund was acquired as part of BlackRock's $1.9 billion takeover of Seattle-based Quellos Group LLC last October. The flagship Appreciation Strategy is based on Quellos Absolute Return Strategy 3, or QARS 3, which has averaged a 12% annual return since inception in 1995, according to an investor.

QARS 3 is the biggest fund of funds among the $20 billion in assets under management group that BlackRock acquired when it bought Quellos to expand its offering of absolute return products. The biggest LSE-listed fund of funds is Dexion Absolute Ltd., which grew to $3 billion in assets after it raised a further $950 million via a share issue in late 2007 Previous HedgeWorld Story.

BlackRock's move goes against expectations that single-manager hedge funds are likely to account for a majority of assets raised in British public listings in 2008. Although there are more than 40 funds of hedge funds listed in London, many are considered too small to survive long-term and the economics of the industry suggest that a round of mergers and acquisitions in the sector is likely. Whether BlackRock will get involved in the consolidation or just seek to attract permanent capital through the listing isn't known.

UBS is acting as sponsor, global coordinator and bookrunner. BlackRock has assets under management of $1.36 trillion and is 49% owned by Merrill Lynch.