Goldman Sachs Group is seeking money to bankroll fledgling hedge funds, its second attempt since 2008 to break into a business now dominated by Blackstone Group, according to three people with knowledge of the plan.
The bank has spent the past year trying to attract clients for a seeding fund, which provides managers with startup investing capital in exchange for a cut of their fees, said the people, who asked not to be identified because the effort is private. Blackstone recently raised $2.4 billion for its second seeding fund, the industry’s biggest.
Goldman Sachs, based in New York, closed a similar fund in 2008, underscoring that betting on new managers can be tricky.
Seeders generally invest $100 million to $150 million in a hedge fund, providing a pool of capital to help the manager begin trading. In return, the seeding fund gets 15% to 25% of the hedge fund’s fees. The seed money is often locked up in the hedge fund for three years, and seeders return initial capital to their investors after about five years. Seeding funds retain their ownership stake until it’s bought out by the manager or a third party.
Blackstone jumped into seeding in 2007 with a $1.1 billion fund that took stakes in eight managers. While one of the hedge funds failed in 2008, the company’s portfolio has returned about 50% since inception, according to investors. The remaining firms collectively manage $7 billion, and three have more than $1 billion, including Senrigan Capital Group, run by ex-Citadel trader Nick Taylor in Hong Kong.
Goldman Sachs plans to seed managers through a new venture between its hedge fund strategies group, which allocates money to managers for clients, and its Petershill Fund, which buys stakes in established money managers, said the people familiar with the matter. They didn’t disclose how much money Goldman Sachs is seeking for the effort, which will be led by the firm’s Ali Raissi.