June 9, 2009
Hedge Fund Journal
Practical summary of the state of the seeding market and benefits of partnering with seeders.
Comment from Patric de Gentile-Williams, COO at FRM Capital Advisors (FCA):
- The environment for hedge fund seeders has changed dramatically over the last 12 months
– There are now fewer seeders in the market
– Even established funds are looking for seed capital after redemptions have hit their funds
– Some start ups have suffered as their original seeders have withdrawn from the market
– Investors are more stringent than ever before on issues such as corporate governance, use of third party administrators and transparency
Just as some investors pulled assets out of the hedge fund industry in 2008, the amount of capital and the number of firms in hedge fund seeding also reduced. However it is important to stress that this reduction is due to stresses in the parent businesses of the seeders not in the seeding business itself. Today far fewer players are active in providing seed capital to hedge funds. This, combined with the increased difficulty that hedge funds face in raising capital, has created a favourable environment for the remaining seeders.
Some start-ups have suffered as their original seed investors have withdrawn from the market, increasing the opportunity set for remaining hedge fund seeders considerably. Established and sizable hedge funds are now also turning to the seed capital providers for fresh capital as redemptions have hit their funds. There are many very talented investors looking for seeding and attractive deals can be done.
As a result of recent market turmoil and events such as the Madoff scandal, new hedge funds seeking investment are finding investors much more stringent in their requirements than twelve months ago. As well as only considering investing in a fund which meets their threshold AUM requirements, they are demanding more transparency and stronger corporate governance models. This increases the burden on new hedge funds as they navigate their tricky first year. The attraction of a hedge fund seeder which can provide advice and support, as well as considerable investment, is therefore greater than ever.