Planting Seeds of Growth in 2010
As we enter the home stretch of the second quarter, investors continually looking for a new edge have flocked to the seeding business. Because of the unprecedented shake-up of the hedge fund industry in 2008 and 2009, talented investment professionals have spun-off from large organizations and proprietary desks to found their own partnerships. Based on the recent conversations of BHA analysts, investors are seeking to strike while the iron is hot and begin due diligence on the growing number of 2010 hedge-fund launches.
Investors on both sides of the pond are getting in on the seeding act. Swiss-based Reyl Asset Management, in a joint venture with FRM Capital, recently launched a seed vehicle, while Lion’s Path Capital in New York was founded to incubate long/short equity hedge funds.
Fabrizio Ladi Bucciolini, head of alternative investments at Reyl, recently commented, “Now is the best environment for hedge fund seeding in years.”1 The reason for this is, investors are not only able to take advantage of the typical outperformance in a fund’s initial years, but they are also in a position to receive a substantial degree of transparency and in certain circumstances, an equity stake in the management company.
A U.S.-based fund of funds founded in 2009 is on the verge of closing its $125 million seeding vehicle and expects to make initial subscriptions in the $10 million range. A senior associate at the firm mentioned that it does not plan to limit itself in any respect, including by region. The firm recently conducted a conference call with a fund based in Hong Kong and would not rule out the possibility of allocating to a manager based outside the U.S.
A London-based multi-manager group is strictly requiring full transparency from any of its seeded managers, however, similar to the U.S. investor, it also is keeping an extremely broad mandate. Ultimately, this investor targets the most successful portfolio managers with whom it has total conviction.
There is no definitive data on the number of funds that have been launched during the first quarter and a half of this year. However, given the level of investor interest and activity, the figure should well surpass its 2009 mark.
1 Hedgeweek, “Reyl Asset Management enters the seeding business,” May 13, 2010.