HSBC opens up early-stage hedge fund investment strategy

HSBC has given another boost to early stage hedge fund managers by launching a share class for its fund of early-stage hedge funds, specifically for wealthy individuals and institutions.

The move comes as reports say Cantor Fitzgerald is to launch a hedge fund seeding fund, aiming to raise up to $50m to allocate to 20 to 25 new managers.

It also comes at a time new funds find it increasingly difficult to attract attention, and money, from large investors.

Between 2009 and 30 September last year, 843 funds closed down – many of them sub-scale. However, 585 started up over the same period.

And statistically newer funds are more likely to beat larger rivals, as managers with fewer assets rely more on performance – and typically a 20% incentive fee from it – than on a fixed charge based on assets. They can also move more nimbly to exploit markets.

An index tracking performance of 295 managers that are under four years old and began with $600m or less, created by Opalesque, lost just 1.83% of its value last year.

It made 18.73% in 2010 – almost double the industry’s 10.74% – and 34.51% in 2009, when the industry made 20.37%, according to Eurekahedge.

HSBC’s Next Generation fund, fishing in such waters for 10 to 15 target managers, invests in new and upcoming hedge fund managers globally. It aims to make 12% to 15% a year over a market cycle, with target volatility of 8% to 10%. It offers monthly liquidity.

Early allocations since inhouse launch in September include to Avantium Liquid EM Macro, managed by Kay Haigh, and Apson Global Fund managed by Edouard Salet.

HSBC has some history picking successful ‘early stage’ hedge funds – it was a day one investor in Brevan Howard, Lansdowne UK and DE Shaw Oculus funds. Other early stage investments it made were in Third Point, Clive Fund and, more recently, Tyrus.

Peter Rigg (pictured), global head of HSBC’s Alternative Investment Group, said: “HSBC has been researching emerging managers for many years, and we have an established track record of investing in some of the best new managers in the industry.”


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