Protege Partners is planning to provide funding to new hedge funds next year at a time many investors are pulling away from the industry and new managers are eager for cash to start their businesses.
The New York-based company makes so-called seed and accelerator deals where it funds newcomers and earns not only the fund’s investment returns but also a chunk of the fees those managers earn from other investors.
“We hope to do multiple seeds next year,” Protege’s chief investment strategist Michael Weinberg said on Wednesday at the Reuters Global Investment Outlook Summit in New York.
He did not say when the deals might be struck or how much money the firm might invest in individual hedge funds.
This year the firm has funded three hedge funds, marking a 200 percent increase from last year, Weinberg said. Most recently Protege funded former Macquarie manager David Meneret’s Mill Hill Capital and former Baupost Group Managing Director Miguel Fidalgo’s Triarii Capital.
The interest comes at a time the hedge fund industry is again delivering largely lackluster returns and investors are scrambling for ways to make more money.
“Seeding can be very lucrative and offer some higher returns,” Weinberg said, noting that seeders reap a fund’s returns, get discounted fees and earn revenue from third parties. Generally the stakes are made in very small funds that Protege hopes could ultimately raise as much as $1 billion in assets.
At the same time Protege is also pushing for fee cuts in an industry long known for its steep costs where funds often charged a 2 percent management fee plus 20 percent of the profits, known as an incentive fee.
“It is not acceptable to take 2 and 20 percent in a low digit return environment,” Weinberg said.
Many pension funds have cut back on their investments in hedge funds in the last months complaining about their high fees and low returns.
While many of the world’s biggest hedge funds may not be ready to cut their fees, Weinberg said that the newcomers are generally more willing to take a smaller cut in order to get going.