Gathering Assets Still Difficult for Hedge Funds (New and Old)

I spoke to the CEO of a London-based hedge fund group today. He said that his experience was that money was coming back into his hedge funds slowly. His funds outperformed two-thirds of the industry last year and this. "The whole process (of investing) takes a lot longer than it used to," he said.

It is natural, given Madoff (and maybe K1) that due diligence prior to commitment of any capital will take longer than it did previously. The due diligence will be more diligent, and there may be second checks, and references are much more likely to be taken up now.

The situation for hedge fund managers looking for seed capital is much more difficult than it was. There remains a shortage of entrepreneurial spirit in combination with ready capital from seeders. A survey by Acceleration Capital Group* estimates that from the stated intentions of seeding groups there is 44% less seed capital available in the second half of 2009 than there was in the first half of the year. The survey also shows that there are less seeders around by number than there were. As in the first half of the year, the strategy preferred by most seeders is distressed investing.

*available at http://www.scribd.com/doc/22022800/Hedge-Fund-Seed-Capital-Report-For-Q3-Q4-2009