Maverick Capital Management LP is a $9 billion investment firm run by Lee Ainslie has announced that they have made their first seeding investment in a hedge fund start up. Sycamore Lane Partners said they received capital from Maverick Capital and it has allowed the fund to open up a long/short value fund which began trading on April 2nd.
The actually investment is unknown but sources say that it is a “significant capital contributions with extended lock through 2015”. However, from a filing back in July we are able to determine that Maverick had set aside $22 million with a seeding vehicle.
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Investing in hedge fund start ups is the newest rage over on Wall Street and throughout the financial industry. The reason being that hedge fund managers are getting more aggressive these days which, in theory, means higher rates of return. If the returns are high, the managers are able to charge higher performance fees which is the attractive nature that brings investment in hedge fund start ups.
The Blackstone Group L.P. (NYSE:BX) is an industry leader when it comes to hedge fund seeding with their $2.4 billion raised in the firm’s second seeding last year. The Blackstone Group L.P. (NYSE:BX) mostly invests in private equity, although the firm does have investment in hedge funds.
Also, as announced yesterday, Tiger Management added another “cub” to the mix when the firm announced they were backing a hedge fund by Knut Kjaer. Valuewalk noted that a source familiar with the matter told us that many hedge funds were starting their own tiger cubs. This appears to be happening more and more every day.
Sycamore Lane Partners was founded by James D’Angelo and Cregg Watner. According to D’Angelo and Watner the firm will be investing in long positions in 20 to 30 different stocks or shorting 30 to 50 stocks that have liquidity problems, questionable accounting or poor capital allocation.
In addition, Sycamore has also said that Maverick will not be involved in the day to day operations of Sycamore Lane funds. Instead, the owners say that Maverick will serve with “strategic advice” on getting the fund off the ground and going somewhere.
This latest investment craze may pay off for the firms involved but now we are going to have more hedge funds playing the market. This could be good or bad for the markets. It could be good because light volume is underscoring the rally but too many mangers with the capability of influencing markets is not good either.
Unfortunately, there is not a whole lot we can do about this and there has been no response from the government which means that either they haven’t had time to develop a policy for this seeding investment or they do not see it as a threat to the markets. Regardless, watch out for any government intervention.