Hedge Fund Seed Capital

Hedge Fund Seed Capital

hedge fund seed capital, hedge fund capital
Hedge Fund Capital Guide Part 1
Hedge Fund Seed capital is the money a hedge fund tries to raise to launch or within it's first year of operating to try to "get it off the ground" and hopefully raise enough assets to appear respectable to initial investors and provide initial momentum towards breaking even as a business. Hedge fund seed capital is in high demand, there are literally hundreds of investment groups looking for it right now and only three or four handfuls will receive any significant amount of it. Some hedge funds are seeded with as little as $500,00 while others receive up to $350M. From my experience I would guess that 70% of first year hedge fund seed capital levels range from $3M to $25M.

Hedge Fund Seed Capital Sources

  • Hedge Fund Seed Capital Source #1: High Net Worth individuals (accredited investors) who are familiar with your trading skills, past portfolio management experience, or clearly understand your competitive advantage in the marketplace.
  • Hedge Fund Seed Capital Source #2: Family & Friends who are accredited investors.
  • Hedge Fund Seed Capital Source #3: Private Equity Firms. Many private equity funds have jumped into the space of seeding hedge funds and many will in turn work on raising assets for your fund once it will benefit both your fund and themselves.
  • Hedge Fund Seed Capital Source #3: Hedge Funds. Some hedge funds have huge amounts of free cash flow and are looking for ways to re-invest it within strategies they understand and do not directly compete with products that they plan to create on their own.
  • Hedge Fund Seed Capital Source #4: Associated banks or investment networks will often seed new hedge fund products they are launching with significant levels of capital.
    Hedge Fund Seed Capital-Related Trends
If you read hedge fund news every day you will notice several trends emerging in the area of hedge fund seed capital. The most prominent is as mentioned above many private equity firms are agressively placin seed capital with emerging hedge fund managers. The second is that most of hedge fund seed capital is coming from established hedge funds and private equity groups or investment banks. I believe that the banks are succeeding in convincing a small fund to give up 20-40% of equity in return for the funds because they also come with marketing and distribution resources that will make the total pie of available fees much higher. Many hedge fund managers have become millionaires after accepting outside seed money or an equity investment.

Interested in hedge fund marketing? Read dozens of more hedge fund marketing & sales articles along with details on third party marketing within the Hedge Fund Marketing Guide.

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Related Terms: hedge fund seed capital, hedge fund of fund seed capital, hedge funds seed capital, fund of fund seed capital, hedge fund seed capital sources, hedge fund capital, hedgefund capital, hedge funds capital, hedge fund of fund capital sources


walshrick@mac.com said...

question: what is the source of the data that suggests that pe firms are actively seeding hedge funds? i work with pe firms and have not seen that at all. i find that to be very interesting.

also, could you direct me to a website or a textbook that can help me to understand and to size the hf industry? how much money flows in to hfs each year, how many new funds are created, how many fail, how many use 3rd party marketing services, who are the major 3rd party marketers?

much appreciated.

Richard Wilson said...

Hello RW,

There is no one source of data for my claim of private equity investments in hedge funds, but they are being made a weekly or almost daily basis. Here is one that was announced this morning: http://www.hedgeweek.com/articles/detail.jsp?content_id=203665

Here is one discussing Goldman Sachs raising more PE capital for hedge fund acquisitions and ownership stakes: http://www.telegraph.co.uk/money/main.jhtml?xml=/money//2007/10/07/cngoldman107.xml

I will be putting together an article on hedge fund industry within a week that will give you a good overview of the size of the hedge fund market and by how much it is growing each quarter and year. Let me know if you have any additional questions after I post the hedge fund industry facts entry this week. Thanks for the comment.

- Richard

Anonymous said...

The PE funds take ownership in existing funds they are not a source of seed capital.


Richard Wilson said...

Some might make a distinction but myself and many of the funds I work with would refer to it as a source of seed capital...in the sense that it is a method of gaining an infusion of capital. Sometimes in exchange for seed capital fee cuts are made, higher hurdle rates set and other times equity is given up to groups like PE firms...that has been my experience anyways.

Richard Wilson said...

Does anyone have an additional 2-3 sources of seed capital or their top 10 tips on attracting hedge fund seed capital?

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