Although money has been flowing back into hedge funds, much of it has gone only to the biggest, most established funds. Investors burned by the financial crisis, lock-ups, and even fraud have opted for the safety and transparency of big funds over the potential returns of a newer, smaller, more aggressive fund.
But this has left the door wide open for those willing to take those risks, reports Reuters. One such investor has been the Reyl Group, a Geneva-based private bank that has “seeded” five new hedge funds through its Reyl Accelerator. The company seeds start-up hedge funds with advice from London-based hedge fund specialist FRM Capital Advisors.
Reyl injects $30 to $60 million into a fund in the hope that it will grow to ten times that size. What’s more, Reyl deals capture a multi-year share of future revenues from the seeded funds. So investors get a revenue stream that goes beyond investment performance. The Reyl fund has seeded five startup hedge funds so far and may complete two more by October.
According to Fabrizio Ladi, head of alternative investments at Reyl’s Asset Management arm, there’s a shortage of risk capital available to new hedge fund managers. So the premium for those who provide it is at historic highs. In his opinion, it all translates into a great business opportunity.
What’s your take? Are hedge fund investors overpaying for the security of large funds and ignoring opportunities from smaller, hungry new hedge fund managers? Add your comments below.