06/04/2014

Man Group Retreats From Fund-Seeding Arena

Man Group is winding down its hedge fund-seeding business.

Via its 2012 purchase of FRM, Man inherited a seeding vehicle that launched in 2007 with $400 million but is now in run-off mode following a recent restructuring. It also took over a joint-venture vehicle FRM had unsuccessfully tried to launch with Deutsche Bank. After failing to raise any capital for that fund in the past two years, Man decided to end the effort and withdraw from the seeding arena — though it still plans to invest with early-stage managers.

Patric de Gentile Williams, a former FRM executive who oversaw Man’s seeding business, left the London firm two weeks ago. For now, he’s working with individual hedge fund managers in an advisory capacity while contemplating his next move.

Over the past two years, the FRM unit focused on marketing the joint-venture vehicle it had set up with Deutsche, known as dbalternatives Discovery Fund. De Gentile Williams envisioned making seed investments of $50 million to $100 million apiece in exchange for revenue-sharing agreements with managers. The plan was to use Deutsche’s robust managed-account program, called dbalternatives, to deploy the capital. Man had high hopes for raising a substantial amount of money for that effort, until investor demand for seeding vehicles dried up last year.

At the same time, de Gentile Williams’ team continued to manage the 2007-vintage seeding fund. The vehicle made its last two investments in 2013, when it took a stake in Hong Kong-based Arena Capital and invested $25 million in CommEq Asset Management. Although originally structured as an “evergreen” vehicle with a potentially unlimited holding period, the fund is now being unwound. The investments in Arena and CommEq have been transferred to other Man vehicles.

Man, via its FRM unit, still intends to make early-stage investments in new and emerging fund operators, but won’t seek equity stakes or revenue-sharing agreements with the managers. Instead, it would negotiate reduced fees or guaranteed capacity in the funds. It’s unclear which executives might lead that effort. Man manages $55 billion in a variety of single- and multi-manager vehicles.

After Blackstone, Goldman Sachs and Reservoir Capital raised a combined $4 billion for hedge fund-seeding businesses following the financial crisis, it became much more difficult for others to compete for investor capital. The last marketing effort to net a substantial sum for a seeding vehicle was led by Grosvenor Capital, which held a final close for a $475 million fund in early 2013.

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