Seeding Vehicle Gearing Up for More Deals
(SEE CORRECTION BELOW) Larch Lane Advisors and PineBridge Investments expect to raise an additional $600 million by yearend for a hedge fund-seeding vehicle they jointly operate.
The private equity vehicle, Select Plus Fund, launched in June 2008 with $400 million, which has since been invested with four hedge fund managers in exchange for a cut of their revenues. In recent weeks, executives from seeding specialist Larch Lane and PineBridge, a unit of AIG, have embarked on a new fund-raising campaign aimed at consultants and prospective investors, including endowments, foundations and family offices. Select Plus Fund now expects to hold a second equity close with a total of $1 billion sometime in the fourth quarter.
In marketing documents, the fund's promoters say that in the wake of the financial crisis, emerging hedge fund managers no longer can rely on many traditional sources of startup capital, such as funds of funds, multi-strategy hedge funds and proprietary-trading desks. That, and the fact that the available talent pool for new managers is "outstanding," makes for an attractive seeding environment, according to Select Plus.
The fund eventually wants to invest $50 million to $100 million apiece in 10-15 hedge funds, though certain managers could be eligible for larger investments. The four funds backed by Select Plus so far:
*Feingold O'Keeffe Distressed Loan Master Fund, a $159 million U.S. bank-loan hedge fund operated by Boston-based Feingold O'Keeffe Capital that was seeded in May 2008;
*The $171 million Stonerise Capital Partners Master Fund, an equity fund managed by Stonerise Capital of San Francisco. The fund was seeded in January 2009.
*Crystal Japan Fund, a $151 million commodities vehicle that was seeded in August 2009. The vehicle is operated by Mizuho Alternative Investments, a New York unit of Mizuho Bank.
*Sothic Capital European Opportunities Master Fund, a $256 million European distressed-companies hedge fund run by Sothic Capital of London. It was seeded in September 2009.
The commitment period for investors in Select Plus ends Dec. 31, 2012, and capital distributions from each of the managers are expected within one year of a 3-4-year lockup period. The managers of Select Plus anticipate returning most investor capital by the end of 2016, although profits from seeded hedge funds would continue to flow until the funds liquidate or the profit streams are sold. Select Plus charges a 1.5% management fee plus 25% of profits.
PineBridge's Hedge Fund Solutions Group, formed in 1982, at one point ran $10 billion through its hedge funds. It now manages about $4 billion in hedge funds and $87 billion overall. AIG has agreed to sell the firm to Pacific Century Group for $500 million, though the deal has hit several snags.
Larch Lane, founded in 1999 by former Paloma Partners executive Mark Jurish, has seeded 25 hedge funds since 2001, including the four investments so far by Select Plus.
CORRECTION (5/12/10): This article incorrectly reported that PineBridge Investments is a unit of AIG. On March 29, the insurance giant closed on its sale of the business to Pacific Century Group.