Infovest21 Investor Focus: Seeding Momentum Builds for 2011

A number of seeding transactions have occurred over the past few weeks. Some are one-off allocations while others are part of a platform. For example:

 Keith Meister is being seeded with $250 million by Soros Fund Management. Meister, who had been principal executive officer and vice chairman of Icahn Enterprises, will take an activist approach. He has served on a number of boards including Federal Mogul Corp and Motorola.

 Patrick Wolff, a managing director at Clarium Capital, is starting Grand Master Capital Management with the first hedge fund launch scheduled for January 1. The fund will focus on a macro-informed long/short equity strategy. Clarium’s Peter Thiel is seeding the firm with $50 million that will be committed for three years.

 Brummer & Partners has seeded former Millennium Management portfolio manager Scott Collison who is starting Orvent Asset Management in Singapore. The event driven fund will start in January with about $150 million in seed capital from Brummer.

 Investcorp and Ballast Capital Management have formed a strategic partnership. Ballast, which specializes in long/short equity, is joining Investcorp’s single manager platform. Ballast is led by Robert Kaynor, chief investment officer, and Ryan O’Sullivan, president. At launch, Ballast will have eight people on its team. Kaynor and two other team members, Mason Stark and Joanna Wald, had previously worked together at Ramius LLC.

The Universities Superannuation Scheme, one of UK’s largest pension plans which has over £30 billion in assets, is considering investing in a seeding fund, reports Financial News. It is currently looking at a number of choices and a decision is expected in early 2011.

USS will have co-investment rights with the seeding fund and also participate on the advisory board of the hedge fund(s) in which the seeding fund invests. The UK scheme will use the stakes to implement improved governance of the hedge fund(s) in which the seeding fund invests, aiming to make a positive impact on the industry and to benefit all investors.

Luke Dixon, the portfolio manager for absolute return strategies at USS, told Financial News that the allocation to the seeded fund would be larger than that made to traditional hedge funds.

At the end of March 2010, USS’ absolute return strategies amounted to £607 million ($977 million), considerably higher than £245 million ($395 million) in March 2009, according to the 2010 annual report. Since then, USS has revealed that the hedge fund portfolio has climbed to £950 million ($1.53 billion) with 15 managers.

A number of new incubators are in the works. For example, The Harvest Fund was formed in early 2010 to develop and manage a private special situation investment platform. The private equity-like structure provides growth capital to promising newly independent hedge firms run by pedigreed teams with expertise and capabilities to build institutional caliber firms. A first closing is planned for early 2011. The fund expects to make five to six allocations over the following 12 to 18 months.

Harvest Fund is an affiliate of Moody Aldrich Partners, a privately held investment firm founded in 1988. Moody Aldrich Partners is owned by Eli Kent, William Moody, Amory Aldrich, Eyk Van Otterloo, Jeremy Grantham and Michael Pierre. MAP manages equity investment strategies for large investors through separate accounts. Eli Kent and Chris Kelley are co-founders and managing partners of Harvest Fund.

Wilshire Associates is assisting with key aspects of the platform including investment manager and operational due diligence, risk management, separate account platform services and distribution support.

Eli Kent says, “Our platform is structured to be flexible and highly scalable in order to offer co-investment opportunities to our larger clients and to potentially partner with the right institution and/or strategic partner to accelerate growth.”

Additional information on seeding in the hedge fund community is available in Infovest21’s just-released issue of Investor Focus. The issue contains interviews with Weston Capital Management, Alternative Asset Managers and Stride Capital. Samplings are provided of hedge funds seeded in 2010 and a Who’s Who of Tiger Seeds.