Triple A is nearing the end of an era in the hedge fund seeding business, with the firm set to exit from its final portfolio fund soon, says director Paul Smith.
“We seeded a fund [for] three years, where the seed deal ends this year, in April, and that will mark the end of our seeding business,” says Smith. Triple A’s decision to discontinue its seeding activity is driven by a lack of investor appetite, he adds. “We didn’t voluntarily exit the business.”
Hong Kong-based Triple A, which will continue its hedge fund distribution and marketing activities, had seeded and exited four other funds through its programme, which was inauspiciously launched in March 2008 – just months before the Wall Street crash. The year ended up being one of the most disastrous in the history of the hedge fund sector.
The unfortunate timing led early investors – including the Iveagh family office of Guinness beer fame and CLSA Asia-Pacific Markets Group – to pull out of the platform. “The fund partners decided that, during the financial crisis, that they could utilise the money elsewhere,” says Smith.
The seeding programme was able to continue after Triple A raised capital from other investors. Seeding is “a lovely business”, adds Smith. “You’re helping people and, if it works, it’s a good business [to be in].”
The conclusion of Triple A’s seeding programme comes at a time of adjustment in the industry, which is seeing closures among hedge funds that performed poorly, while new strategies are being launched in Asia by seasoned managers.
“You can’t argue that now’s a good time to be raising seed money,” says Smith. “It was virtually impossible to raise seed capital for hedge funds [in the post-crisis period]."
Blackstone is said to have raised $2.4 billion last year for its second seeding fund, while Goldman Sachs has reportedly so far raised about $600 million for a seeding platform that is continuing to take capital from investors.
Blackstone – which provided about $100 million in seed capital to Hong Kong-managed Senrigan Capital in 2009 – and Goldman are known to be sniffing out opportunities in Asia. However, the relatively small size of the region’s hedge funds can make it difficult for large global seed vehicles to allocate to local managers, says Smith.
“They need a fund that’s $100 million [in size] so they can put $20 million to work,” he notes. “What we have to wait for in Asia, unfortunately, is a slight change in investor mentality where investors begin to say to themselves that this is resulting in a top-heavy environment where big funds are more likely to receive allocations than peers that are smaller in size but perform better.
“In Asia, many managers are struggling to survive,” says Smith, who is optimistic that the maturing regional hedge fund industry will continue to attract seasoned managers and investor capital.
With the seeding platform nearing the end of its lifecycle, Smith has been busying himself with a new venture called AGS Capital Partners, which is being run as a division of Triple A and serves as an advisory to family offices in the US, Europe and South Africa.
“We work for family offices when mandated [and] advise them on their investments in Asia, always through managers,” says Smith. He has spent the past 15 months setting up AGS with Simon Cox, who has worked with family offices Fleming Family & Partners and Search Investment Group.
“We try to demystify the process to help them build trust in [asset] managers based in the region,” says Smith.