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 68% 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 aggressively placing 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. |
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