How do seed deals impact on fund raising for new hedge fund managers?

The Fundana series of articles discusses Investments in Emerging Managers; it derives from the real world experience of the Fundana team. Fundana is the investment advisor to several Funds of Hedge Funds and directs at least half of its new investments to Emerging Managers. The investment process typically involves allocating a small amount Day 1 or Early Stage (defined as less than one year after the fund's launch) to new managers who have strong pedigrees.

The objective of this series of articles is to share thoughts around our key observations. It does not aim to be "statistically significant" but to create a dialogue around those observations.

This article from Nick Morrell looks at one of the key non-investment decisions that a new manager faces prior to launch:

"Should I look for a seed deal?"

The seed deal landscape has changed significantly over the last decade. In the years leading up to the financial crisis the seeding business was relatively idiosyncratic, with money coming from within the industry as well as a small number of institutional seeders. Players in the space included Reservoir Capital and Protégé Partners, as well as Julian Robertson with his "Tiger Cubs". A number of other hedge fund legends also seeded spin-outs or other new launches such as Chris Shumway (Shumway Capital), David Einhorn (Greenlight Capital) and Jim Simons (Renaissance Technologies).

Since 2008 there has been an institutionalization of the seeding business, with a stronger focus on the large private equity-style funds which have been set up to seed new hedge fund managers. Th......................

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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.