The latest Preqin survey shows that the number of hedge fund investors expressing an interest in seed investments has almost doubled, from 11 per cent in 2009 to 21 per cent in 2010.
Investors feel that the benefits of investing in these funds, such as fund ownership, fee negotiations and early access to the next generation of hedge funds, far outweigh the disadvantages in the current climate.
Seed investments are also evolving post-crisis, as investors award seed capital to more established vehicles that may have encountered fundraising difficulties or lost assets through the crisis.
Investors are setting higher barriers to entry for their fund managers, with the proportion of investors that would consider investing with managers with a track record of two years or less falling from over 50 per cent in 2009 to 38 per cent in 2010.
Investors are more willing to invest in smaller funds. In 2009, 25 per cent would only consider investing in funds with at least USD500m in assets under management. In 2010, this figure has fallen to 19 per cent.
Seventy two per cent of funds of hedge funds on the Preqin database will invest with an emerging manager and a further 13 per cent would consider such an investment.
Amy Bensted, manager – hedge fund data at Preqin, says: “The industry contracted following the market crisis, and most funds lost assets. Investors have recognized this and are now willing to invest in smaller funds. Although investors are wary of investing in funds in their very early stages, fund managers that are able to build up a track record through investment of their own capital, or of a small fund, will be attractive to the institutional market. In 2011 we can expect investors to continue to look at smaller, and indeed emerging fund managers, and more capital to flow into the sector.”
