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Alternative Market Briefing

Other Voices: Hedge fund incubation and seeding. A perspective for 2009

Wednesday, May 13, 2009

This article was authored by Bryan Goh, First Avenue Partners LLP, London.

In the interest of full disclosure, First Avenue Partners of which I am a partner, runs a hedge fund seeding and incubation business. I generally don't talk my own book and I don't intend to start now, but I will speak generally about the industry without specific reference to what we do. So please read this with a skeptical eye, and if seeding sounds like it makes sense, there are a range of seeders besides FAP out there. Talk to as many of them as you can, and please feel free to tell me if I am out of my mind. With that out of the way, let's begin:

In 2006 if someone suggested that it was a good idea to be seeding and incubating†hedge funds, I would have been highly skeptical. Managers who were any good were raising large amounts of capital on their own on day one, mediocre managers were able to start with credible amounts of day one capital and even managers who while talented had no idea how to run an†investment management business could get into business. The hedge fund seeder faced insurmountable†adverse selection problems.

Hedge fund managers willing to give away either a share in their management company or a share of their fees tended to be of lower quality. You didn't want to be seeding them.

Hedge fund managers of good quality but who understood the†business development support role of a seeder and were happy to work with one we......................

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