Asset Alliance Best managers who are still down from asset peaks present prime opportunities for re-seeding

17 Jul

Seed funds have had their fair share of the spotlight over the past few weeks, as they advocate for
allocating to a hedge fund industry that has fewer funds, more experienced managers spinning out of
investment banks, and a marketplace full of opportunity as global economies continue to deal with fallout
from the financial crisis. With the seed environment moving much more in the favor of investors than it
has been in the past years, stakes in new launches can be very rewarding. However, seed firm Asset
Alliance, head-quartered in New York, stresses that in this recovery climate the best risk/reward
opportunities in seeding aren’t always with newly launching managers.
“We think that the sweet spot right now is actually re-seeding managers as opposed to seeding a new
fund from scratch, which requires time for them to grow,” Bruce Lipnick, Asset Alliance CEO told
Stories of funds raising assets are in the headlines often enough that there is a level of optimism through
the industry that re-growth is solidly underway.
In February hedge funds saw $16.6bn in returning assets (BarclayHedge/TrimTabs), however, the cold
hard facts still add up to an industry with assets that are only a shadow of their former self. For most
managers this means asset bases are still decimated. And for a large number of these managers,
pointing to strong performance through 2008 and 2009, and best practices infrastructures hasn’t made a
difference in courting returning funds. And those are the managers Lipnick and his team are targeting.
“A lot of the managers who performed well but had liquid strategies, and didn’t gate have dropped from
$250m-$300m down to $50m. And now they are sitting there stuck in the mud,” he says. “They may have
a good track record, good infrastructure, no highwater marks and yet they still cannot raise assets.”
Asset Alliance itself has a strong optimistic outlook, not only for the opportunities that the better hedge
fund managers will be able to take advantage of, but also for the eventual return of assets to the industry.
With its strategic partnerships with third party marketing firm Hedge Harbor, which extends the firm’s
reach into Europe and the Middle East, the firm expects US managers to be able to tap into certain pools
of foreign investors, some for the very first time.
For re-seeds, once a manager is back up to a higher asset base, Lipnick says that generally speaking it
takes 1-2 years of solid performance to get them “back into the system” so that they are once again on
the radar screens of the institutional investors. And the firm sees institutional investors gradually
increasing their hedge fund investments overall.
“I think you are seeing more and more institutions realizing even though 2008 performance wasn’t good
across the industry, hedge funds still protected assets,” he says. “Wisconsin and New Jersey State
pension funds announced increases to their hedge fund allocations and we expect to see more of that
from other pensions that realize alternatives are where they need to look to make money and hedge
funds are a lot more liquid than private equity and there is no other way to meet this world wide trillion
dollars short fall for pensions.”

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Posted by on July 17, 2012 in Asset Alliance


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