Dutch and German heavyweights extend hedge fund seeding activities
Four alternatives fund industry heavyweights, including manager for a Dutch pension and Germany’s largest bank have today been involved in separate joint ventures to finance new hedge fund managers, showing a marked renewal of interest in financing nascent managers since the financial crisis.
Deals were announced today between Deutsche Bank and veteran fund of funds manager Financial Risk Management on the one hand, and on the other from Hong Kong’s Synergy Fund Management and the IMQubator platform, which is backed by APG, asset manager for the Netherlands’ Stichting Pensioenfonds ABP pension scheme.
Institutional manager Hermes BPK Partners, part of the Hermes group, announced its own seeding platform with US private equity group Northern Lights Capital Group late last year.
These moves mark a stark turnaround from the financial crisis, when financial backing for aspiring hedge fund managers fell by an estimated 75% to $2.4bn over the nine months to mid-2009, according to US industry monitors Acceleration Capital.
In the case of FRM and Deutsche Bank, FRM’s seeding operation FRM Capital Advisors (FCA) will launch a hedge fund seeding managed account platform.
It will complement the 10-year old dbalternatives fund platform from Germany’s largest bank, and draw on the long-standing seeding activities of FCA.
IMQ’s and Synergy’s alliance will focus on financing promising hedge fund managers in the Asia Pacific region.
The various news also highlights the increased popularity of fund platforms as a way to access alternatives managers – as highlighted by recent statistics from HedgeFund Intelligence showing total assets in the five largest hedge fund platforms – including Deutsche Bank’s – had almost reached $8bn by June last year.
Under terms of the DB/FRM agreement, FCA will choose and negotiate investments in nascent managers, using managed accounts on the dbalternatives Discovery platform. Deutsche Bank will help the activity by raising capital for a seeding fund investing in the young hedge funds chosen by FCA.
Allocators to the fund will receive fund returns, and a portion of the manager’s revenue.
Deutsche Bank’s global head of fund derivatives, Stephane Farouze said: “dbalternatives Discovery is set to reinvent hedge fund seeding through the introduction of managed accounts, which we believe are crucial when investing in emerging managers. Whatever the pedigree of the manager, it’s in these early stages that close monitoring of risk and style drift are most essential.”
FRM chief executive officer Blaine Tomlinson said the institutionalisation of the hedge fund industry meant talented managers needing “strategic capital to reach critical mass”.
The deal represents an extension of business for FCA, and for Deutsche Bank’s alternatives fund platform activities, which already involved managers such as Paulson & Co (John Paulson), Traxis Partners (Barton Biggs), Millburn Ridgefield Corporation and Lynx Asset Management, part of Sweden’s largest hedge fund group Brummer Partners.
In Asia, IMQubator and Synergy FM – founded by Eliza Lau, former CEO and CIO of SAIL Advisors – will focus mainly on Japan and China funds. Synergy will find nascent managers while IMQ will advise SFM on successfully seeding and accelerating growth of those chosen.