EUROPE/US - Hermes BPK Partners, the hedge fund investment arm of institutional manager Hermes, is to support and seed hedge fund businesses as the climate for start-ups in the $2trn industry re-emerges.
The $1.6bn unit of Hermes will identify promising managers and provide "strategic business support", via a platform it is establishing with $11bn US private equity firm Northern Lights Capital Group.
The move mirrors continuing extension of seeding activities by peers such as FRM Capital Advisors and Reyl Group.
Finance for young managers has regrown since plunging by around 75% between the third quarter of 2008 and June 2009, from $7.5bn to $2.4bn, according to US financial intermediary Acceleration Capital.
Hermes BPK Partners said its venture would draw on its expertise "identifying and evaluating drivers of risk [and] actively engaging with managers to ensure operational efficiency, and facilitating growth through marketing and distribution services".
It added these risks included fragile company infrastructure, the commercial weakness of the firm and poor investment performance.
Hermes BPK Partners and Northern Lights will provide ‘acceleration capital' to fund managers early in their growth cycle, and also seed new funds. In return, Hermes would receive revenue or an equity stake which would increase as the firm grows.
Managers can be sourced globally but are predominantly in the US, Europe and Asia.
Matteo Dante Perruccio, CEO and founding partner of Hermes BPK Partners, said: "Partnering with Northern Light Capital Group brings together combined expertise to launch an innovative and new acceleration seeding strategy focused on active management.
"This unique approach to seed/accelerator funding looks to enhance returns and mitigate business risk for institutional investors over the long term."
Paul Greenwood, Northern Lights' managing director, said: "Following the financial crisis in 2008, there has been a tremendous shortage of capital available to support new alternative managers - yet history has shown that it is often these early-stage firms that deliver the best returns.
"Many established managers are in need of acceleration capital to support the ongoing growth of their businesses, driven in part by expectations of the institutional investor community for more sophisticated infrastructure and risk management capabilities."
This week has already welcomed a number of new funds.
Three launched on Bank of America Merrill Lynch's platform, bringing its assets to $2bn, while Swiss Investment Managers announced it will launch next month Europe's first hedge fund to base long and short investments solely on directors' and senior corporate executives' share dealing in their own firms. SIM said its strategy under Athanasios Ladopoulos exhibits correlation to equities of between 0.2% to 0.4%.
Meanwhile, Bank of America Merrill Lynch has added three Ucits hedge funds to its platform - Perella Weinberg Partners Sustainable Resources Long-Short UCITS; TT Financials; and Westchester Merger Arbitrage.
Perella Weinberg Partners' fund seeks long positions linked to scarce resources, while shorts are based on "regulatory and technological disruption in these sectors".
Donald Pepper, TT International's investment director for hedge funds, said of his firm's financials fund: "Our strategy delivered returns in excess of 24% in 2008, for example. The opportunity in global financials is particularly attractive now."
Roy Behren, president of Westchester Capital Management, said of that firm's announced-M&A fund: "The strategy has historically provided attractive, stable, and uncorrelated returns in virtually all market environments. Cash-heavy balance sheets, readily available debt financing, low interest rates, and improving stock prices should all encourage deal-making and with it, merger arbitrage opportunities."
Meanwhile, London's Matrix Asset Management has taken over management and renamed Olympus Capital's Candela fund. The Matrix Pan-European Equity fund is managed by John Barden and Anthony McCarthy, who made money for investors in their fund at Olympus for nine of 10 years, and 94.9% overall.
Estimates suggest the fund made 1.5% in August, while European shares fell by about 11%.
This article first appeared in Investment Europe
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