Asset Alliance seeks humbled hedgies to buy

05 Jun

HEDGE FUNDS ENJOYED ONE OF THEIR BEST years in a decade in 2009, and optimism reigns for this
year as well. There’s just one problem — a lot of hedgies got their assets kicked during the redemption wave of
2008, when markets plunged 40% to 50% and hedge funds lost an average of 18%.
According to HFR Research, fund assets fell to $1.6 trillion from nearly $2 trillion before the fall. A lot
of funds went out of business, with the total falling to 6,500 from 9,000 pre-bust.
So after scrambling to preserve capital, hedge-fund managers are eager to put money to work. But
investors have been slow to return.
Hedge funds with less than $100 million are having a particularly hard time finding new cash, says
Bruce Lipnick, CEO and founder of Asset Alliance, a global alternative-investment firm with $1.6 billion
in assets that specializes in acquiring, seeding and growing hedge funds. AAC was a pioneering firm in
acquiring multiple hedge fund firms back in 1996. It’s now one of more than a dozen worldwide
“seeders” and “re-seeders.” Business is good.
Here’s how it works: Firms like AAC provide seed money to start-ups and re-seed money to emerging
managers — those with $1 billion in assets or less — who may be low on cash but have proven track
records. In exchange, the firms get a piece of the fund and its fees. Some companies and public
pension funds also invest directly in emerging managers.
AAC will also help market the fund and work on communications and compliance — important features
given the potential for new regulatory oversight.
“The industry has changed,” says Lipnick. “It’s more process-driven and institutionally minded,” he
Lipnick will soon be looking for institutional investors to invest in its first seed and re-seed fund. It’s
like “investing in private equity without the leverage,” he says.
The investor gets his return on investment (the HFRI Fund Weighted Composite Index gained 20.1%
last year) plus a percentage of the fees. As the hedge fund’s assets grow, so does the original
investment. But there’s no risk of leverage because investors have ownership in the income stream.
Asset Alliance also runs a $226.3 million open-ended mutual fund, Alpha Hedge Strategies (ticker:
ALPHX), which invests in 25 different hedge-fund strategies


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