Hedge Fund Incubation Services
Below please find a short article excerpt on hedge fund incubation and seeding. This resource is being added to our guide on Hedge Fund Startups and will also be published on Hedge FundStartup Guru.com. Here is the excerpt:
In 2006 if someone suggested that it was a good idea to be seeding and incubating hedge funds, I would have been highly skeptical. Managers who were any good were raising large amounts of capital on their own on day one, mediocre managers were able to start with credible amounts of day one capital and even managers who while talented had no idea how to run an investment management business could get into business. The hedge fund seeder faced insurmountable adverse selection problems.
Hedge fund managers willing to give away either a share in their management company or a share of their fees tended to be of lower quality. You didn't want to be seeding them.
Hedge fund managers of good quality but who understood the business development support role of a seeder and were happy to work with one were labeled as poorer quality and found it difficult to raise capital, so also were from a business perspective, less attractive to a seeder.
Seeding was simply a negative signal to the market all around.
In fact, seeders play an important part in the hedge fund industry. They provide all kinds of support that the fledgling hedge fund manager simply doesn't want to bother with such as infrastructure, business development and marketing, a stable base of capital, corporate governance, risk management and a host of intangibles such as a sounding board for trade or business ideas.
Of course until the adverse selection problem was resolved, none of this really mattered. And well it should be. The adverse selection up until the middle of 2007 was severe.
2008/2009. What's changed? Investors risk appetite has been drastically reduced. The number of new funds starting up is down drastically, the number of fund closures is up drastically. The size of the hedge fund industry has halved in size by assets under management according to several of the usual industry sources such as HFR, Eurekahedge and surveys conducted by the major prime brokers. source
View over a dozen additional resources on starting a hedge fund on Hedge Fund Startup Guru.com or within our Hedge Fund Startup Guide here on HedgeFundBlogger.com.