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Bailey McCann, Opalesque New York for New Managers:

A newly launched firm is setting up first-loss capital arrangements for emerging hedge fund managers.

Sam Vogel, a veteran broker and hedge fund marketer, has started FirstLossCapital.com to provide capital introduction services and first-loss funds. Vogel tells Opalesque New Managers that he is focusing on emerging managers because of the barriers emerging managers face when it comes to raising capital.

But it's not without risk. First loss capital arrangements involve creating a managed account with capital providers whereby the hedge fund manager makes an initial investment, capital providers make a matching investment, and any losses will come directly from the hedge fund manager's portion until it is exhausted. If a given strategy performs well, first loss capital can get emerging hedge funds to sufficient asset size that they can bring their strategies to institutional investors faster than they otherwise would have.

First loss capital has emerged as an alternative to seed funding, and some established managers have also used these arrangements. Paulson & Co entered into a first loss arrangement in 2018, following a few up and down years for the firm. Vogel says his mix of traditional capital introduction services including hedge fund marketing and first loss capital can help mitigate some of the risks. His vettin......................

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