Hedge Funds Review European Fund of Hedge Funds Awards 2015
Tages Capital is one of the most active seed investors in Europe, having spent the past two years building its seeding business from scratch. It has made more than $500 million in seed investments since. Judges awarded the company best seeder at the Hedge Funds Review European Fund of Hedge Funds Awards, and Tages Platinum Growth won best long/short equity fund of hedge funds.
The company first raised capital for its Cayman-domiciled Tages Emerging Opportunities fund in January 2014; it manages just over $200 million in assets. The fund focuses on seeding and acceleration deals with new and emerging alternative managers. The company also has a French-domiciled LFP Absolute Return Selection fund, now $85 million, which seeds Ucits funds in collaboration with Morgan Stanley.
Tages provided all the capital for a $100 million insurance-linked securities fund launched in partnership with Deutsche Asset & Wealth Management in January this year. Tages also signed a $100 million acceleration deal with Palmerston Capital, a credit long/short fund, in mid-2014. Its assets now total around $260 million.
"We're in the process of deploying up to $600 million in additional capital, with a focus on Ucits, and we're looking to continue our expansion into the single funds space," says Mark de Klerk, head of seeding strategies. Infrastructure funds and Ucits funds intrigue Tages, simply because of the high European demand for them. The company aims for three to five fund launches in the next year.
"We take a very flexible approach to the way that we structure deals. Our starting point in any deal is to ask the manager what they want, what their objectives are," says de Klerk. On a few occasions Tages has initiated an original product idea with an already established manager and then seeded a commingled vehicle in exchange for a revenue share and/or low fees. In this way Tages has seeded two frontier markets products with two funds in order to obtain hedge fund exposure to Africa and Eastern Europe.
In the past Tages has even helped source an experienced chief operating officer for a fund it seeded. The seeder often gives advice on best practice and operational set-up, and will make investor introductions where appropriate, but is not actively raising capital for its external funds.
Having witnessed many funds start and succeed, and start and fail, de Klerk thinks the most important thing for portfolio managers starting funds to understand is to hire the right senior management. "If I were setting up a hedge fund I would spend a lot of time making sure I got the right COO or CEO: the people that are going to drive the business forward," he says. They can build the right infrastructure for the fund, allowing the investment team to focus on performance.
His secondary tip is to grow the hedge fund business "in a consistent way". He has seen too many high-profile star traders fail to deliver; grow the business too fast and you can also lose investment style. "I would prefer to see them build up a profile slowly, build up a track record," he says.
Another mistake he sees is a new hedge fund offering preferential liquidity terms to one set of investors and not others. "Tages will not request this, even as a seed investor. Institutional investors are just not going to be happy with that," he advises. Some funds offer two classes of investment within the same vehicle: one with higher liquidity in exchange for a fee. "We would tell managers just to keep things as simple as possible," he says.