03/10/2010

Springbok to Hedge Funds: Put Up or Shut Up

Springbok Capital has raised $250 million for a multi-manager vehicle that will place an extraordinary demand on underlying managers.

On April 1, the New York firm will begin allocating $10 million to $50 million apiece to smaller hedge fund operators that agree to set aside reserve capital that will serve the same purpose as a first-loss piece in a structured-finance deal. Should the manager lose money, the reserve capital will serve as a cushion for other investors in the multi-manager vehicle. In exchange, Springbok is willing to negotiate performance fees that are significantly higher than the standard 20% of gains.

In the past, hedge fund operators might have laughed at a fund-of-funds manager making such a request. But since the financial crisis, even many prominent fund shops have made concessions to investors by reducing fees, easing liquidity and hiring third-party administrators.

Springbok is betting the arrangement will appeal to less-established managers who have struggled to raise capital during the downturn. The new vehicle, Prelude Opportunity Fund, targets liquid, low-volatility hedge funds with less than $250 million under management.

The idea of requiring managers to set aside reserve capital to protect the fund was inspired by the proprietary-trading desks of big banks, which often require traders to invest their own money along with the bank's capital. In the event of losses, the trader's capital serves as collateral for the bank.

Springbok was founded in 2004 by Gavin Saitowitz, previously a portfolio manager at Highfields Capital in Boston, and Cisco del Valle, formerly a mergers-and-acquisitions specialist at Bank of America. Until now, the firm has focused on managing a long/short equity hedge fund that employs a fundamental-value strategy. Since its inception, Springbok Opportunity Fund has posted an average annual return of 14.6%. The firm had $500 million under management at its peak, but heavy redemptions during the financial crisis forced it to restructure.

To support its launch of a multi-manager vehicle, Springbok is adding to its operations team. The firm is interviewing for a number of positions, including director of manager selection, director of marketing, risk manager and chief financial officer.

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