It’s just over a year since PAAMCO Prisma debuted Launchpad, a co-investment platform for seeding and supporting emerging hedge funds with Employees Retirement System of Texas (ERS) as its inaugural investment partner. Jeff Willardson (pictured), Managing Director, PAAMCO Prisma and Head of Investments for Launchpad brings Hedgeweek up to speed on the past twelve months and what to expect in the coming year…
HW: What was the thinking/motivation behind the establishment of Launchpad?
JW: Launchpad was an idea that came about organically through conversations between us and ERS of Texas (ERS). It was really a coming together of two like-minded institutional investors and recognising that the most challenging part about emerging hedge fund managers is the sourcing. At PAAMCO Prisma, we’ve done a good job of building those sourcing networks over the past 20 years. ERS recognised that they have a liquidity time horizon that’s different from many other hedge fund investors. They are much more willing to extend their duration of capital if they can get compensated for doing so. The ‘aha’ moment in discussions with Texas was us saying ‘we have the emerging manager sourcing capabilities; if we had longer term capital willing to be locked up, there is extra return potential in these manager situations. Because we can now provide locked up capital, and do so in a meaningful size, from an economic standpoint we can get revenue share from a manager.
HW: How has Launchpad been received in the industry?
JW: There has been significantly more demand from managers than we would have thought. And we’ve been pleasantly surprised at how high quality the managers are.
HW: What have been the major achievements in the first year of operation?
JW: The biggest achievement is that the idea is right. Managers need capital now more than ever. There are many more managers to consider than we have money to fund them. We are pleased to be in the position to partner with talented emerging managers and form strong partnerships in which all parties can benefit from the managers’ future successes.
HW: What are the goals for the coming year?
JW: In the coming year, we want to do 3-4 seed deals, and we want to add more strategic investors to partner with. There is a lot of interest in the value proposition that Launchpad solves for, and I give ERS a lot of credit for being able and willing to move first. They are our anchor investor, but we hope to build Launchpad with a small syndicate of like-minded and large institutional investors who desire similar seeding partnerships. ERS has been very good about introducing us to other investors who have an interest in similar relationships and partnerships.
HW: Has anything surprised you during the first year of operation?
JW: The deals take longer than you might expect. These are complex, almost private equity style transactions, with the need for legal and structuring expertise, which we have, but you need to support it with external providers. The level and frequency of interaction and communication with the managers is paramount to moving the process along smoothly, particularly because these managers are starved for capital and are eager to launch, but oftentimes don’t quite understand how long the process takes.
HW: What have you learned so far that will shape the future direction of the business?
JW: We have learned the importance of collaboration with our partners. We want our partners in Launchpad to be the architect of their solution and not just invest in some blind pool. Texas is very involved in our sourcing and screening of managers, and we want other partners to have a similar influence in the program. Investors are yearning for uncorrelated returns, and if you can structure your relationship in the right way, you have the potential to add significant value in ways that many current hedge fund programs cannot. You can improve your alignment of interest, transparency, and fees, amongst others.
