Thu, Mar 5, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Seeding Platforms: bifurcated market, institutional interest, new players, asset raising and dry powder

Thursday, March 22, 2012
Opalesque Industry Update: In its just-released special research report, "Start-Ups, Seeders and Strategic Stakes," Infovest21 delves into the trends underway in the seeding community as well as the outlook for 2012. In discussions with more than 25 seeders and acceleration platforms, Infovest21 highlights the following trends:

Bifurcated two-tired market

A two-tiered market is developing in the seeding community. Only a few pedigreed managers will be seeded in the $100-200 million range since not that many seeders have the ability to allocate in that size range. Blackstone, Goldman Sachs and Reservoir are repeatedly mentioned as the largest seed allocators.

The less pedigreed managers will be seeded by the smaller seeding firms. Some of these smaller seeding firms are focusing on managers who haven't been able to achieve sufficient asset size because they don't have marketing or a robust infrastructure.

Seeders say Blackstone and Goldman are doing $100 million deals for 20% revenue share while the next tier is doing $50 million deals for 25% revenue share and marketing. Some other trends that seeders see or expect are:

Limited number of seeding deals

Seeders don't expect to see a huge number of large deals done - perhaps 24 solid seed deals in 2012.

Four to six seeding deals a year per major seeding platform is typical and is not expected to increase. The amount of work done for one transaction is significant. "Once you've done four to six a year, you've worked pretty hard. If you multiply that across the four to five [major] players, that comes to roughly 24 deals. Some may do fewer deals in a year. You end up with a constrained universe," says one seeder.

There is also a limit to the amount of capital that seeders want to allocate to managers. "There are thousands of people looking for capital in a year. You don't want to give money to more than 2-5% of those. You want to limit transactions to the very best people. You don't want to overcrowd," the seeder adds.

High deal quality

The Volcker rule, closing of proprietary trading desks and reduction of Wall Street bonuses are incentives pushing more employees at hedge funds and traditional firms to form their own hedge funds and build their own businesses. The quality of the deals is very high. The teams are robust with considerable experience.

New seeding platforms

There is more interest in seeding. There are more focused players as well as traditional ones.

Due to the large supply of talent available, new seeders are springing up. So far in 2012, Grosvenor Capital Management has raised assets for the Grosvenor Emerging Managers Fund, Direct Access is setting up an asset management unit to provide seed and acceleration capital to liquid, trading-oriented hedge funds through managed accounts, and The Emergence Absolute Performance Fund was launched to guide and support entrepreneurial initiatives in the French market. Cantor Fitzgerald has hinted it may be getting in the seeding business.

Managed accounts

Because managed accounts provide an easier way to get transparency and risk management, they are becoming an important part of the seeding process. Managed accounts allow institutions, which up to now wouldn't have invested in the old LP structure because they didn't have transparency and liquidity, to invest much earlier.

One seeder says, "The managed account platforms can attract a client base, they have a function and a purpose. There are potential benefits from risk aggregation, third party control mechanisms, reporting and transparency. It's a natural extension and probably indicative of where you'll see more seeders going."

Asset raising

Seeders say asset raising has picked up in the first few months of 2012. They expect 2012 will be better than 2011 as the markets are up and more positive though still challenging.

Increasingly, seeders have formal programs where they raise assets for the managers and get paid for doing so. In some cases, they bring managers into investor meetings and investors have the opportunity to co-invest. In other cases, seeders are developing a global network of independent capital introducers who each have exclusivity with their top investors.

Dry powder, money to be invested with start-ups, may be $4-5 billion when you add up the major seeding programs, says one seeder. When you add the other one-off transactions, it could be $10 billion.

This is an excerpt from Infovest21's just-released Start-Up, Seeders, and Strategic Stakes Special Research Report, a 40-page report.

Infovest 21

Press Release

Bm

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Outlook - Philippe Jordan predicts 'alternative beta' to displace hedge funds, Stan Druckenmiller says Europe, Japan stocks will outpace U.S.[more]

    Philippe Jordan predicts 'alternative beta' to displace hedge funds From Investordaily.com.au: The disappointing performance of hedge funds in recent years is a result of "too much money chasing too little alpha", argues Capital Fund Management. Speaking to InvestorDaily, CFM partner Phi

  2. Investing - Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched, Myriad hedge fund sold bulk of its Alibaba stake last year[more]

    Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched From Valuewalk.com: As hedge fund manager Seth Klarman, leader of the $28 billion Baupost Group, reviews 2014 performance and considers investors gained near 7 percent on the year, he cons

  3. Investing - As rig count falls, hedge funds pile into long crude futures, Parus tactically shifts long/short exposure ratios, Mario Draghi outflanking Kuroda as bearish euro bets surge, Prime Capital’s 500.com bet derailed after 41% drop[more]

    As rig count falls, hedge funds pile into long crude futures From 247wallst.com: In the week ended February 27, the total number of rigs drilling for oil in the United States came in at 986, compared with 1,019 in the prior week and 1,430 a year ago. Including 281 other rigs mostly drill

  4. Opalesque Exclusive: dbSelect’s top ten FX strategies average almost 10% in January[more]

    Benedicte Gravrand, Opalesque Geneva: In one of Deutsche Asset & Wealth Management (AWM)’s hedge fund platforms, called dbSelect, a number of FX Strategies did very well in January. dbSelect is a managed investment platform for unf

  5. Opalesque Exclusive: SEC’s Mark J. Flannery warns hedge funds against valuation misconduct[more]

    Komfie Manalo, Opalesque Asia: Securities and Exchange Commission chief economist and director of Division of Economic and Risk Analysis (DERA) Mark J. Flannery has warned of the risks posed by market misconduct, particularly in the true valuation of assets by hedge fund managers. In his