Seeding firms are confident that 2011 will present opportunities to deploy capital to new managers, speakers at HFMWeek’s latest US Breakfast Briefing inNew Yorkagreed last week.
During a discussion on strategic partnerships, HFMWeek’s four panelists predicted that, after two years of relative inactivity, the seeding sector would grow over the next 12 months as it responds to increased and better quality launches, along with greater investor demand.
The stipulations of the Volcker Rule, enabling seeders to access the talent of departing investment bank prop teams, was cited as a key opportunity, although speakers cautioned that trading expertise, must be complemented by a workable business model.
“The question is whether the prop trader has a scalable strategy, can develop a business, not just trading, but dealing with clients, compliance, infrastructure and transparency issues,” said Bruce Lipnick, CEO at Asset Alliance Corp.
In October, a HFMWeek survey revealed that hedge fund seeders have more than $1bn to invest in new talent and are planning to raise a further $3bn over the next 12 months.
Stuart Feldman, head of capital introductions at Fidelity Prime Services, told the audience that there are many options for seeders to find talented managers looking for assets.
“For those in the audience looking at seeders, you need to understand what their capabilities are in your due diligence process,” he said.
Meanwhile, Don Rogers, founder of Stride Capital Group, a seeding firm that was established last year, said he is looking to invest in fundamental equity and credit strategies globally.
“Done right, they provide downside protections as well as upside and certain teams can exploit their edge over long time periods,” he said.
Ralph Nacey, principal of WestSpring Advisors, a credit hedge fund that had received anchor capital from FRM Capital Advisors, was the fourth panelist.
Author: Elana Margulies