Early-stage hedge fund investing will continue to evolve

Data provider Peltz International said that asset flows into hedge funds continue to go to larger managers and fund managers with less than $100 million in assets account for less than 4% of the total industry assets.

The trend is likely to continue this year, however, Peltz said there is sufficient money out there to get talented managers to get started as the hedge fund assets continue to grow.

In a white paper, Peltz said that seeding has evolved over the past four years. It is no longer pure seeding, but has also taken a more consultative approach with customized portfolios. From 2000 until 2004, managers didn't want people to know if they had been seeded. Now, it is considered a plus.

"More managers today are looking for a strategic partner when they launch as costs are higher than ever and it takes longer to raise capital. Having a strategic partner allows the manager to spend time to build infrastructure, hire analysts and focus on his portfolio. It gives him time to put together a proper team and allows time for the strategy to play out," the report added.

In the past, most seeded managers came from banks. Now, they are spin outs from hedge funds or managers at multi-manager platforms with entrepreneurial ambitions.

Seeders observe more movement occurring along the early-stage investing spectrum. For example, an individual on a platform may want to run his own business or he may become frustrated with tight risk control and move to seeding.

A number of individuals on Millennium's platform have recently been seeded by traditional seeders. Brummer & Partners seeded Marko Saldo at Talarium Capital, Moody Aldrich's Harvest Funds Management seeded Robert DeFranco and Stable Asset Management seeded a Millennium team that set up as Arctic Blue Capital.

Peltz added, "Today, launches are generally smaller than before. The launches are mo......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.