Hedge Fund Seed Capital
A recent study showed that hedge funds receiving seeding and operational assistance outperform broad hedge fund indexes and average hedge fund performance figures. This study was completed by George Martin and Joseph Pescatore from the University of Massachusetts and Jefferies Asset Management.
Pescatore makes the point that in the past there was a somewhat negative connotation to discussing how a hedge fund may have received seed capital or operational support during their firs 3-5 years of operation. Specifically he said, “The question investors asked a hedge fund manager, ‘if you are any good, why do you need these guys?’ I think not only has it changed, I think that has completely reversed.” It seems that Pescatore now believe that if you are “that good” you should have money being thrown at you from multiple hedge fund seeders.
While some people may not be as positive as Pescatore on seed capital being a good thing, I believe the general feeling is if you aren’t tied down by stringent terms or pressure that impact your investment process as the result of the seed capital or support than it is a positive thing and only bolsters your business showing a vote of confidence by an outside firm.
