From seeding to harvesting, 08 shaping up to be year of change for hedge fund industry
Jan 16th, 2008 | Filed under: Hedge Fund Industry TrendsHedge fund ”seeding” has been around for several years as a flood of new hedge funds hit the market. Academic research has shown that younger hedge funds outperform (although this is questioned by those who argue that hedge fund data is biased by new funds that only choose to report if and when they outperform. But seeding’s apparent re-emergence this year, after a relatively tough year for new launches, is only the tip of the iceberg and heralds a new phase in the maturation of the hedge fund industry.
Last week, we covered the reverse takeover of Asset Alliance, a company that takes equity stakes in emerging hedge fund managers (see related posting). Soon afterwards, FRM, the $14b fund of hedge funds announced the launch of its own hedge fund seeding platform. FRM seems to be pitching this new fund as an alternative to buying hedge fund IPOs, which it tells the FT “generally aren’t great.” Clive Peggram, who heads up the initiative, tells Thomson News that the fund will close at about $1 billion and plans to allocate $50m-$100m chunks to hedge funds pursuing a fundamental strategy.
While the focus of these funds is on early-stage start-ups, the increasing popularity of seeding operations (Man and MFS also have similar programmes) can be interpreted as a sign that the hedge fund industry is maturing. As the FT points out, raising capital ain’t what it used to be. As this piece in the Guardian last week shows, institutional investors want size and track record - and neither of these are strong suits for the start-ups. As a result, it’s getting easier to convince start-up hedge fund managers to part ways with some of their equity.
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