BOSTON (Reuters) - Blackstone Group has written the first check from its latest seeding fund, sources familiar with the matter said this week, committing $100 million in start-up capital to a new hedge fund run by a former TPG-Axon executive.
Blackstone is looking to use cash from its $1.5 billion Strategic Alliance Fund III, the first seeding fund it has raised since 2011, to bet new players can succeed in an industry that has struggled with years of investor withdrawals and sluggish returns.
The New York-based investor, one of the world’s biggest alternative asset managers, funded Keita Arisawa’s Hong Kong-based Seiga Asset Management earlier this month, the people said. The hedge fund, launched earlier in 2017, plans to make bets on Asian stocks.
A spokeswoman for Blackstone declined to comment as did Seiga’s chief operating officer Irene Law.
Fund III raised money from well-heeled investors like pension funds and endowments. The $1.5 billion compares with $2.4 billion raised in 2011 by Blackstone for Fund II and $1.1 billion raised for Fund I a decade ago.
Blackstone’s seeders take a 15 percent to 25 percent cut of the hedge fund’s business, people familiar with the terms said.
Blackstone Alternative Asset Management, run by Tom Hill, as a unit invests some $73 billion in hedge funds through direct investments, the seeding funds and other means.
The average hedge fund’s roughly 3 percent return last year fell far short of a 10 percent gain in the U.S. stock market, and investors pulled $111 billion in assets from the $3 trillion hedge fund industry, eVestment data showed.
Money has come back this year, according to eVestment, with investors preferring smaller funds and niche investments like bets on Asian markets, industry analysts have said.
Commitments of start-up capital from Blackstone, which has placed bets on industry stars like Daniel Loeb’s Third Point and Steven A. Cohen’s SAC Capital Advisors, before the government shut the hedge fund down amid insider trading charges, often prompt other investors to follow.
Now Blackstone plans to write checks to as many as 14 other managers in addition to Arisawa, the people familiar with the matter said.
Competition to be part of Blackstone’s stable is fierce. For Fund I, Blackstone executives reviewed some 250 applications before selecting eight managers, including Doug Silverman and Alexander Klabin’s Senator Group as well as Mick McGuire’s Marcato Capital Management, people familiar with the process said.
Blackstone is not alone in the seeding business, with rivals like Paloma Partners, Protégé Partners and Reservoir Capital Group also making start-up investments in newcomers.
To be sure, not all Blackstone seedlings go on to success. John Wu’s Sureview Capital as well as Mark Black’s Raveneur Investment Group, which received start-up capital from Fund II in 2014, have both shut down.
But for hedge funds just starting out, partnering with someone like Blackstone can provide the help needed to get their businesses up and running.
Some seeders have offered help in the form of tips on how to structure funds, finding real estate and acting as a sounding board on strategies, fund managers have said.
Arisawa ran Asian operations for Dinakar Singh’s TPG-Axon from Hong Kong and left last year when Singh pulled back operations to New York, closing both his Tokyo and Hong Kong offices. Before arriving at TPG-Axon roughly a decade ago, Arisawa worked at Goldman Sachs.
Reporting by Svea Herbst-Bayliss; Editing by Meredith Mazzilli