Seeding the path to success in hedge funds
Jeroen Tielman,founder of the IMQubator hedge fund seeding platform and Patric de Gentile-Williams, COO of hedge fund seeding business FRM Capital Advisors, have discussed the outlook for their sector.
It is said that in Goldman Sachs before the financial crisis, there was a joke: “If you can’t raise a billion dollars to start your hedge fund, don’t even bother.” Investment was easy to come by, and launches boomed through the noughties. When the financial crisis hit, and investors increasingly turned their attention to managers with long track records, launches plummeted; from 1,197 in 2007 to just 659 in 2008. New regulation and compliance is making running the business of a hedge fund more complex than ever before. For a new manager the benefits of partnering with a hedge fund seeder, with their back-office resources and access to investment capital, are clear. But what does seeding have to offer the investor?
“Only a seeder can truly engineer the alignment between talent and investment,” says Jeroen Tielman (pictured), CEO of IMQ Investment Management and founder of the IMQubator hedge fund seeding platform. IMQubator is a multi-manager fund in the form of an FGR, a Dutch fund structure similar to a fund for a joint or shared account. The fund focuses on a pure end-investor based process of “incubation”, which sees them taking an equity stake in the fund’s management company, and requires seeded managers to move to IMQ’s headquarters in Amsterdam.
Patric de Gentile-Williams is COO of hedge fund seeding business FRM Capital Advisors (FCA). FCE recently partnered with Deutsche Bank to launch the dbalternatives Discovery platform, developed in 2002 and based on Deutsche Bank’s dbalternatives managed account platform, which provides a managed account framework for hedge fund seeding.
For de Gentile-Williams the answer to “why seeding?” is even simpler: “We would expect a seed investor to earn approximately twice the return that a normal investor would.”
This promise of strong returns is what attracts capital to the seeding industry. However, such strong returns carry inevitably carry risk with them.