Best Seeding Platform – Protégé Partners, LLC
New York-based Protégé Partners, LLC was founded in 2002 to focus exclusively on investing in small and emerging managers with an opportunistic approach to seeding.
In total, Protégé manages approximately USD2 billion in assets. Its flagship fund-of-funds invests in 32 managers (as of 31August, 2015), 23 of which are considered "core" managers, the other 9 being "periphery" managers. Core is defined as any manager with an allocation in excess of 1.5 per cent of the fund at cost.
As of August the flagship fund pays an average 1.5 per cent management fee and 18.05 per cent incentive fee to underlying managers. Investors with Protégé can choose to avail themselves of customised portfolios or commingled portfolios. An estimated 61 per cent of firm AUM is currently held in customised portfolios.
"Experienced qualitative investment judgment has been the source of our competitive advantage and is one of the most important tenets of our investment philosophy," explains John Mackin (pictured), President. "Qualitative judgment relies heavily on the completeness of information. Absolute return managers spend their waking hours searching for information that the marginal investor has not learned in order to gain an edge. Similarly, Protégé spends its days digging for information that will help generate a variant perception, allowing it to invest in overlooked or undiscovered managers."
Over the years, Protégé has seeded managers across diverse sectors, geographies and investment styles. Protégé generally looks for managers it believes have perfected a certain method of investing and intend to replicate this methodology in a new venture.
Similarly, Protégé looks for investment teams that have worked together previously and recommends that its seeds hire business development and operational staff with prior experience in start-up funds.
Asked to describe a typical seed deal on the platform, Mackin responds: "Protégé will generally seed a manager with up to USD100 million. We do not take a GP stake in the seed manager, but rather negotiate a top-line profit share. We believe this construct offers the best alignment of interest by allowing fund managers full discretion over employee compensation and other business costs."
Protégé has built a strong pipeline of talented managers in 2015 but has yet to do a seed deal. In 2014, it seeded Ledbury Capital, a London-based European special situations manager. Mackin confirms that roughly 20 per cent of Protégé's AuM is invested in seed managers.
"Our opportunistic approach to seeding allows us the flexibility to remain discerning and to optimise terms on behalf of our investors. Therefore, the bar for seeding is high and Protégé will only seed where we perceive what we believe to be a significant opportunity, exceptional talent, and a complimentary fit within the wider portfolio," says Mackin.
The ability to gain access to talented managers with differentiated return profiles is a key attraction to investors when gaining exposure to smaller managers.
"Small managers have the ability to access a wider range of styles and strategies, many of which center around niche or capacity constrained investments. Also, small and early stage managers allow Protégé to potentially command more attractive terms, including lower fees and improved transparency," explains Mackin.
On winning this year's award, CEO Jeffrey Tarrant comments: "We believe this Hedgeweek Award speaks to the strength of our seeding model, both in our opportunistic approach to seeding as well as our focus on small or capacity constrained managers."