Service Providers Set Sights on Startup Firms
Three hedge fund service providers are separately pursuing startup managers by offering streamlined services and cut-rate fees.
Fund administrator Columbus Avenue Consulting has set up an "emerging managers platform" that provides basic asset-valuation and reporting services for half the usual rate. Citigroup has begun marketing a currency-trading platform designed to be accessible to small hedge funds that don't yet trade in large volumes. And auditor Grant Thornton is about to introduce a tiered pricing schedule that would offer "softer" services at reduced fees.
The initiatives reflect the contraction of the hedge fund business during the past year. Prior to last year's market meltdown, hedge fund managers could count on launching with at least $100 million under management. Now, with many investors still licking their wounds, the norm has become a "soft launch" with $10 million or $20 million raised from friends and family.
"They want to get their feet wet, establish a track record and go out publicly to investors in 2011," said Stephanie Doane, head of business development for Columbus Avenue. "But in the interim, they want to keep costs low."
Columbus Avenue already has signed up two managers that plan to launch funds in January. Over the next year, the New York firm hopes to add 20 or so long/short equity funds to its emerging-managers platform.
For under $3,000 a month, Columbus will do month-end net-asset valuations and process subscriptions and redemption requests. Additionally, it will handle daily trade reconciliation, provided the fund's trading volume is low. However, it won't assign dedicated staff to each manager, as it does for its full-service clients. Columbus currently has 60 clients with a combined $5 billion under management. In addition to its New York headquarters, the firm operates from Dallas and Toronto.
Citi, meanwhile, has begun recruiting clients for its new currency-trading platform, dubbed CitiFXpro. The program is being run independently of Citi's prime-brokerage business, which caters to larger hedge fund clients. With CitiFXpro, a manager can deposit as little as $10,000 and begin trading currencies around the globe, without having to worry about meeting collateral and margin requirements. The trading accounts are federally insured. "Startups are a huge audience for CitiFXpro," said Sanjay Madgavkar, who heads up the business.