Outlook is upbeat for capital raising and hedge fund seeding

A hedge fund seeder talks to Opalesque about the current trends in his industry.

Tages Capital, one of the most active European seed investors, is seeing interest from two main investor bases, Mark de Klerk, Head of Seeding Strategies, tells Opalesque in a video interview. One is on the hedge fund allocator side, the other on the private equity side. The former looks to enhance returns in the low yield environment by investing early-stage and getting an interest in the emerging fund' business, "in what is still a very high margin industry at no additional costs."

"They're attracted to the positive convexity that seeding can provide to their portfolio," de Klerk says. "If you think about it, the revenue share participation can never be negative." So these investors are in a position to target returns of 12% to 15% net compared to the average hedge fund return of 5% p.a.

Investors on the private equity side are more interested in the diversification aspect of such investments. They are also attracted to the higher margins of this industry and the natural exits, as well as the target profile and its lower duration, "at arguably a very different point in the cycle."

Targes has invested approximately $700m of seeding or acceleration capital across 15 transactions over the past four years. The firm, which is part of Tages Group, manages two dedicated seeding vehicles with $400m in AuM, one focused on offshore funds, the other on UCITS. Bifurcation of seeding industry

As hedge fund returns have been "challenging" of late, seeding has provided an enhancement......................

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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.