Hedge Fund Seeders Want Volume, Liquidity and Talent

February 5, 2008 |

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FINAlternatives reported that Hedge Fund Seeders are looking for three main things in emerging hedge fund managers: Volume, liquidity and talent.  This is interesting in that seeders are no longer looking for that “special something” which some might describe as exotic.  Looks like hedge fund seeding is back to basics: a solid strategy, capacity and pedigree …

It’s no secret that emerging hedge fund managers vastly outnumber the firms that are in the business of seeding them. But while they may be too few, they are certainly varied.

Wanted: Volume, Liquidity

Some seeding firms focus on plain-vanilla strategies, such as equity long/short. Simon Clowes, a partner at VCM Fund Management, said his firm specifically focuses on equity and derivatives strategies, including event-driven or special situations, statistical arbitrage and futures-based strategies.

“We’re not focused on highly structured products in the credit or mortgage space or private equity or long lockup strategies,” he said. 

Last year, VCM entered into a joint venture with Robeco to launch an emerging manager platform and a fund of hedge funds, the Robeco VCM Emerging Managers Fund. The platform has already spawned a long/short hedge fund with a systematic futures strategy. What’s more, another two or three strategies are waiting in the wings, according to Clowes.

“Our platform has three functions: seed capital, marketing and operational infrastructure, which we offer to portfolio managers,” he said. “We also have an internal fund of hedge funds, which gives investors a blended return from a variety of different funds. Or they can invest directly into the underlying managers.”

The platform, which will allocate up to €20 million (US$29.5 million) per underlying manager, shares in a portion of the management and performance fees depending on how much seed capital, marketing or operational resources they’re looking for. Clowes said he’s looking for experienced managers with strong trading backgrounds and “fully-formed strategies.”

Talent, Talent, Talent

Other firms take a much more opportunistic approach to sourcing managers. For SkyBridge Capital, it’s all about talent. “In real estate, it’s location, location, location, and in the hedge fund industry it’s talent, talent, talent,” said co-founder Anthony Scaramucci, who added that the firm has been involved with cash-strapped managers as well as better-capitalized ones.

SkyBridge takes 20% to 25% of the gross revenues from underlying managers in exchange for its risk management and marketing services. The $330 million firm is reportedly raising a new fund to broaden its portfolio to include global emerging managers but Scaramucci declined to comment on the new offering.

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