02/11/2011 Author: Tony Griffiths

Top hedge fund seeding firms have $4.6bn still to allocate

Hedge fund seeders have at least $4.59bn available to them in unallocated capital, HFMWeek research suggests, opening the door to dozens of potential seed deals in 2012.

The estimated total – the sum of the unallocated pools of seed capital at HFMWeek's top ten seeders – follows an impressive 12 months of capital-raising by several big names, with the likes of Blackstone Group, Reservoir Capital and Goldman Sachs seeing strong inflows. All three have the vast majority of their ‘dry powder’ left.    
   
Accounting for well over a third of the $4.59bn total, Blackstone has around $1.8bn left to play with, having raised $2.4bn for its Strategic Alliance Fund (SAF) II. Now closed to new investment, the fund has been busy signing tickets – Taylor Woods Capital Management, Sureview Capital and Harbor Bridge are among five firms to receive SAF II money to date. A further three or four are expected in the next six months.

Historical seeding giant Reservoir Capital, which has returned to the fore following a period of relative inactivity since the 2008 financial crisis, has raised around $1bn ($850m of which is currently available) for its first dedicated seeding vehicle.

The firm is targeting a further $500m for a $1.5bn final close next year. Instigating plans for a new seeding fund at the start of the year, GSAM’s progress appears somewhat muted by its normal, lofty expectations. Nonetheless, a reported raise so far of $500m for a $1.5bn target suggests strong interest. 

New York-based Protégé Partners is believed to have around $750m available for new seed deals. However, the firm has no dedicated pool of capital and this estimate is based on an internal limit for seed deals of 50% of company AuM. About 25% of its $3bn AuM is currently allocated to seeds. 

Between them, Blackstone ($1.8bn), Reservoir ($850m), Protégé ($750m) and Goldman Sachs ($500m) account for almost 85% of total dry powder – $3.9bn of $4.59bn. Of the remaining $690m, Scandinavian banking group SEB has the lion’s share. Its $300m Manager Catalyst Fund II is still to make an allocation.

London-based FRM Capital Advisors (FCA) and new US entrant Maverick Capital Management, via its Maverick Seed Partners fund, both have about $100m each. 

Europe accounts for the rest: Dutch firm IMQubator has two €25m ($35m) tickets still to allocate; Paris-based NewAlpha Asset Management has around $60m left; and Austria's Erste Bank, another firm without a dedicated pool of seed capital, can afford around three deals at about $20m each.     

“It’s still a buyer’s market, perhaps not quite as much as it was though, terms appear to be tightening up a little," said Guy Wengraf, head of Erste Bank’s seeding division.

According to an HFMWeek estimate, based on each firm’s dry powder and typical ticket size, there are around 53 deals at an average ticket of $90m currently up for grabs. However, seed deals appear in a variety of different sizes and guises, and with a reported increase in seeder vigilance to match the inflows, such a total is highly unlikely to be fulfilled in 2012 alone.

HFMWeek has counted 18 deals by seeding firms in the last 12 months. Indications are that the true total is unlikely to be much higher.

“There are more players but not necessarily more deals,” said Patric de Gentile-Williams, COO and co-founder of FCA. “Clearly the players are more conservative and cautious – this is a good thing.”  

In reality, the dry powder total will be greater than the HFMWeek estimate. New players Pulse Capital, Moody Aldrich Partners (Map) and Stride Capital – all of whom are in capital raising mode – have unknown totals.  
 
US- and Bahrain-based Investcorp – making its first seed deals in 2011 since the financial crisis – is looking to seed two-to-three funds in the next 6-12 months, from an undeterminable pool of seed capital.