Investors
Imqubator (IMQ), the $250 million Amsterdam-based seeding platform backed by Dutch pension giant APG, has confirmed it will focus increasingly on acceleration deals as opposed to seeding, and is seeking to collaborate with large asset managers in order to do so.
Acceleration deals are in effect early stage investors that tend to allocate to managers with around two years track record. Their investment terms and conditions are often less onerous than seeders in that they will not have as big a share of future profits.
“We are increasingly looking towards acceleration deals. The opportunities in seeding are scarce, and we are looking at managers nowadays running between $50 million and $100 million or $40 million to $125 million before we put in acceleration capital. These deals carry less risk and can help managers reach an institutional standard,” said Jeroen Tielman, chief executive officer at IMQ.
In September 2013, IMQ pumped $33 million of acceleration capital into a Hong Kong-based volatility arbitrage fund – True Partner Fund – bringing its Assets under Management (AuM) to $107 million.
IMQ is also looking to team up with large traditional asset management firms lacking internal hedge fund teams to work with towards implementing more acceleration deals. “One of the big trends we see is large private equity or asset managers without hedge fund teams hoping to break into the space. It is certainly something we are entertaining and actively seeking to do,” said Tielman.
Seeding as a whole has diminished since the crisis with a number of investors still highly reluctant to put capital to work in day-one or very early stage managers. A study in 2012 by J.P. Morgan’s Capital Introductions Group revealed 68% of institutional investors would not provide seed capital.
A number of prominent seeders have retreated from the space. The most notable example being SkyBridge Capital which returned external capital to investors from its two seed funds in May 2012 following lacklustre performance.
“Investors feel more comfortable investing in a manager with a proven track record and decent sum of capital, rather than just a firm with several hundred thousand dollars in AuM or sub $10 million. The barriers to entry have obviously increased as many investors will not touch a firm with less than $150 million. This gives firms like ours an opportunity to invest in slightly larger managers than we normally would have in the past,” commented Tielman.
Seeders are also making very few deals leading to their own underlying investors to question their value proposition. Furthermore, the terms and conditions imposed on hedge funds in exchange for seed capital can be one-sided, which is leading to some managers shunning these early-stage allocators.
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IMQ
J.P. Morgan
SkyBridge Capital
seeding
acceleration deals
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