Hedge fund seeding so “last month”?
Feb 12th, 2008 | Filed under: Hedge Fund Industry TrendsIn January, it appeared hedge fund seeding was on the come back (see related posting). But according to this piece in the Wall Street Journal on Monday, hedge fund seeding is so last month. Said the Journal:
“Seeding became a popular business strategy in recent years as it became clear that growing numbers of investors, including traditionally conservative pension funds, would be pouring money into hedge funds. But many of those investors have since shunned smaller firms in favor of large, established firms that have proven track records and that can afford costly compliance and legal teams.”
As a result of such pressures, says the article, MFS Investment Management recently “killed its hedge fund seeding program”.
However, we submit that the prospects for the hedge fund seeding model are based on two factors: investor demand and (start-up) manager supply. As we suggested in January, boom times for the hedge fund industry meant that start-up funds often felt they didn’t need to give up part of their equity to gain access to capital. As the capital spigots were turned down in 2007 many high quality start-ups probably had a good hard look at their prospects – balancing their marketing efforts against their need to focus on investing. As a result, many hold-outs are now likely reconsidering – making the lives of seeders just a little easier (example).
Of course, the very pressures that would have made some hold-outs blink are also making life difficult for the seeding operations themselves, as the Wall Street Journal points out. The question, then, is how difficult an environment we’ll see for smaller managers. Too easy and the managers won’t want to give up anything; too hard and the seeder can’t raise funds for the whole enterprise to work. These competing forces are what we believe will make 2008 a year of change for the industry.
Related Posts
- Hedge fund seeding: “hot” or “not”?
- From seeding to harvesting, 08 shaping up to be year of change for hedge fund industry
- August Redux? Some hedge fund indices lower and some higher than infamous month from hell
- What are we to make of hedge fund attrition data?
- Hedge fund start-ups, the engine driving industry’s creative renewal, forced to adapt
