New hedge funds are significantly raising minimum investment levels: Study

Minimum investment amounts required by newly launched funds have skyrocketed as new managers are seeking out more start-up capital to counteract their rising bills, said the ‘Seward & Kissel 2018 New Hedge Fund Study'.

To launch their enterprises on a stable foundation, managers decided to raise minimum investment levels significantly over prior years. Higher asset levels are obviously helpful to manage increasing costs and better attract institutional capital.

In further evidence of the industry's emphasis on day-one capital, study data and market intelligence gathered by Seward & Kissel indicates that the number of seed deals rose by 20% in 2018. The increase in seed deals demonstrates new fund managers' desire to get substantial - and patient - dollars in the door, with typical seed lock-ups in the two- to three-year range. The higher end of seed deals remained in the $100-$200m range.

The increase in minimum investment levels was recorded across equity and non-equity strategies, but most dramatic was the rise among hedge funds investing outside of equities. Other key findings of the study In 2018, incentive allocation rates decreased by 53 basis points from 2017 and 100 basis points from 2016 to an average of 18.72 percent per year. Funds using equity or equity-related strategies rebounded from a low of 56 percent of funds in 2017 to constitute 63 percent of funds in 2018. Approximately 63 percent of equity funds, and just 45 percent of non-equity funds, offered discounted management fees or incentive allocations through their founders classes. "Equity funds are better represented this year, but the market is increasingly treating equity and nonequity funds distinctly. The numbers suggest a continuing demand for non-equity funds which often require more resources to manage and thus have higher minimums," said Seward & Kissel Investment M......................

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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.