Hedge Fund Seeder Offers Commingled Fund
After seeding six hedge fund operators on a deal-by-deal basis in recent years, Stable Asset Management has begun marketing its first pooled offering.
The London firm seeks to raise $450 million for the closed-end fund, with hopes of holding an initial close in the first quarter of next year. It began formally marketing the vehicle this month.
Stable wants to invest $50 million to $75 million apiece in 6-8 hedge fund-management firms in return for 20% shares of their revenue. It targets fund operators that follow niche, uncorrelated investment strategies with the potential to grow to $1 billion within their first few years.
The firm is seeking commitments at a challenging time for fund startups, when the industry is suffering steady outflows and other seeding firms have had difficulty raising capital.
Yet as part of Stable’s marketing campaign, the eight-person firm is telling prospective investors the next few years will be a particularly promising time to invest in new hedge fund managers. According to the firm’s marketing materials, Stable anticipates a continuation of market volatility, which should benefit active managers.
Stable says it has produced an 18.9% annualized return from the six startup investments it has made since 2006. That substantially outpaces the 4.2% return of the Credit Suisse Hedge Fund Index and 7.3% return of the S&P 500 over the same time period.
Erik Serrano Berntsen and John Thompson founded the firm in 2009, but seeded two fund-management firms mostly with their own capital before establishing Stable. Those two investments are included in its track record.
Stable has been able to help raise additional capital for the firms it has seeded. Beyond the partners’ own money, limited partners lined up by Stable invested some $300 million with its managers shortly after their launches. In all, the six firms seeded by Stable have raised a combined $3.7 billion.
The firm’s two most recent deals involved the $100 million commodity-focused Citrine Capital and Arctic Blue Capital, a systematic-macro investment firm that manages $180 million. New York-based Citrine launched in 2012 and operates primarily in the metals market, with much of its staff consisting of Touradji Capital’s former investment team, excluding that firm’s founder, Paul Touradji. Arctic, a London firm that launched in 2014, is led by former Millennium Management staffer Jean-Jacques Duhot.
Stable’s fee structure is unusual in that it won’t charge investors performance fees on the capital invested by its portfolio companies. Rather, Stable will charge its limited partners a 20% performance fee only on its revenue shares and on the sale of those shares.
Here’s how Stable says its investments will work: After a startup’s first three years, Stable will withdraw its equity and return the money to its LPs, while continuing to collect its share of revenues generated by the hedge fund operator. Seven to nine years after the launch of its seeding fund, Stable will seek to sell its revenue shares back to the hedge fund managers or to third parties.
Stable will charge a 1.5% management fee, but only on invested capital, as opposed to capital that has been committed but isn’t yet invested. It will reduce that charge to 1% for those investing more than $25 million.
The firm hopes to invest in management firms that can produce top-quartile returns and are run by teams that have worked together in the past trading commodities, stocks or debt, using both discretionary and systematic approaches.
Serrano Berntsen was a management consultant with Bain & Co. before co-founding Stable. Thompson previously managed a group of energy traders at Enron, and before that worked at German oil and gas producer Wintershall Holding. In 2015, the two executives wrote a book, “A Guide to Starting Your Hedge Fund.”