Bloomberg Hedge Fund Summit 2012 in this panel Jason N. Ader, CEO and CIO, Ader Investment Management Gregory Hall, Senior Managing Director, Gregory Hall, Blackstone Alternative Asset Management (BAAM) and Ted Seides , President and Co-CIO, Protégé Partners, LLC talk about hedge fund start ups.
The panel talks about activists, not specifically the big names like Peltz, Loeb Ackman, or Icahn, but smaller players. There is a lot of opportunity in the activist space to find alpha.
The panel hedge fund of fund managers do not like macro funds, except for Bridgewater Associates, BlueCrest and Brevan Howard (known as the B’s). The problem with macro funds with start ups, is that due diligence is extremely difficult. There are many back tests and theory, but no track record. If one met the criteria of the FOF, they might consider it.
They like to seed funds with at least $100 million in AUM, so that investors take the fund seriously, the fund can produce positive returns and cover overhead, and focus on generating returns instead of gathering assets. The goal of FOFs is to provide enough capital so the hedge fund managers do not need to worry about going out of business.
Jason says that getting seeded by hedge funds like Blackstone, Protege etc. is a huge success. It is almost impossible for most hedge fund start ups, but when they do get capital it is a massive stamp of approval.
Ted says that before the financial crisis it was easier for people to get $500 million in seed capital, now the stronger managers are the only ones who can get capital. Gregory agrees and says that the trend started in 2002. People have track records and are very talented usually ages 33-38, so there is always a steady stream. In 2002-2004, all the large hedge funds were closed, and small funds could go on road shows and get money.
Gregory talks about some of the lessons he learned, and notes that is very hard to find the best hedge fund managers. They have never divested from a hedge fund manager, but encourage them and show support, in many cases this has helped improve performance.
Ted says nowadays hedge funds are sold and not bought. The hedge funds have to build a business and service their clients well. Gregory tells managers to avoid talking about future plans with clients, it needs to be a business ready today. Fund managers should invest in the fund and in the expenses of the business.
Jason notes that today there needs to be a concerted team effort, today a lone fund manager has a tough time attracting capital.