Gottex Fund Management has teamed up with Headland Strategic in Hong Kong to provide seed capital to start-up hedge fund managers in Asia.
The joint venture by Swiss fund of hedge funds firm Gottex and institutional investment firm Headland Strategic aims to provide seed money to so-called emerging managers, in amounts from $75-$100 million to each manager.
This differentiates them from other seeders, which usually provide between $5 and $25 million to start-ups. A hedge fund generally needs at least $100 million in AUM before it can attract money from institutions, which typically avoid being a majority investor in any single vehicle.
“It’s a very material departure from the historical seeding programs that we’ve seen in Asia,” says Max Gottschalk, chief executive of Gottex Asia.
Enabling start-up funds to be eligible for institutional investment from a very early stage would help managers to scale up quickly. It is important in Asia, where acceleration capital – usually provided as late-stage seed capital to help boost funds to an institutional level – is not as readily available compared with the US.
Headland Strategic was set up this year by Goldman Sachs veteran Johannes Kaps and Michael Garrow, formerly of Blackstone’s fund-of-funds group in Hong Kong and FoHF firm Sail Advisors.
The seeding program has committed capital from cornerstone investors which include V-Nee Yeh, co-founder of $9 billion asset manager Value Partners, Kaps, Garrow and a number of prominent Asian families – including Hong Kong families, says Gottschalk.
The JV is looking to launch a dedicated seeding fund early next year, he adds. “We’ve seen a lot of interest from families in the US and Europe. We also have a number of institutional investors, [including] some of our European clients, who are interested in taking part in this programme.”
Start-up hedge fund managers tend out outperform their larger counterparts, which can make seeding an attractive business.
There are a small number of seeders targeting Asian start-ups, which includes a mix of regional players such as Ascalon Capital and Samena Asia Managers as well as global firms that include Blackstone Group, FRM Capital Advisors and Protégé Partners.
Seeders typically take a stake in the fund managers in which it invests, or operate on a revenue-sharing agreement. The Headland Strategic venture will enter into revenue-sharing agreements with managers, which “will be received in return for committing $75-$100 million for a period of three years”, says Gottschalk.
So-called second-generation managers – those who have spent several years running portfolios at major hedge funds – will be a focus, he adds.
“Some of the best talent is currently housed in some of the larger, more established global hedge funds. They have run very large portfolios, generated some outstanding performance and are thinking: ‘Now it’s time for me to set up my own shop,'” says Gottschalk.
Gottex last year acquired Hong Kong-based FoHF Penjing Asset Management. The seeding activities of Headland Strategic will be run separately to the operations of what is now known as Gottex Penjing Asset Management.
However, Headland Strategic will be able to utilise some of the firm’s resources including its infrastructure, and teams that provide legal, client servicing, fundraising and operational due diligence.