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Alternative Market Briefing

Seeders embrace capacity constrained strategies

Friday, April 20, 2018

Bailey McCann, Opalesque New York for New Managers:

Active management has always had a problem with diminishing returns at scale. Now one seed funding platform is actually telling managers that 'assets are the enemy'. Delegates at the recent Opalesque Connecticut Roundtable argue that it's more important for emerging managers to focus on performance.

"I think that traditionally seeding has been about scale," says Don Rogers, Founder and Managing Partner, Stride Capital Group a hedge fund seeding firm. The bigger a manager gets - Rogers argues - the better the economics for a seed investor, regardless of what happens to other LPs. But now that the market is more crowded, perhaps the model needs to change.

"Today, finding new teams that can compete with very large, very sophisticated, well-established competitors that dominate a lot of sectors in a very liquid market is very hard. So rather than replicate what has been successful in the past, we try to find new, unique areas of opportunity around the world. Sometimes those areas may even be capacity constrained," Rogers explains. "Our main aim is sustainably higher returns for LPs, not scale."

In order to compete in a saturated market, new managers may have to be willing to run smaller more dynamic funds in order to stand out.

"Investors and managers really have to understand the issue of strategy capacities," says ......................

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