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BayStar Launches Second Hedge Fund Hybrid

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SAN FRANCISCO (–BayStar Capital Management opened another hedge fund specializing in private placement finance and added three new general partners for the fund.

A hybrid between a private equity fund and a hedge fund, the new offering will close at the end of September with US$250 million coming from high-net-worth individuals, family offices, foundations and endowments. The onshore and offshore version of the fund, BayStar Capital II LP and BayStar International II Ltd., will likely complete two deals a month while maintaining eight to 10 active deals at any given time.

Private investments in public equities, often referred to as PIPEs, have been gaining in popularity with investors and are now often used in hedge fund strategies for this reason. BayStar completes transactions with publicly listed companies with market capitalization’s ranging from US$200 million to US$2 billion.

“Slowly but surely, it’s (PIPEs) becoming part of the Wall Street lexicon,” said Lawrence R. Goldfarb, managing member at BayStar Capital.

With that said, the strategy is not offered by many firms. BayStar has been specializing in the niche asset class since 1998, when the firm launched its first hedge fund. That fund closed this last December and at its height had US$425 million in assets.

Interest in the asset class has attracted three general partners for the new fund. They are: Thomas O. Hicks, chairman of Dallas-based Hicks, Muse, Tate & Furst Inc.; Andrew L. Farkas, chairman and chief executive of New York-based Insignia Financial Group Inc., one of the largest real estate services companies in the world; and Louis C. Gerken, founder and chairman of Gerken Capital Associates, an alternative equity merchant bank in San Francisco.

BayStar Capital’s fund has an investment minimum of US$500,000 and a one-year lock up. Service providers for the new fund are: Bear Stearns and Bank of America as prime brokers; IFA as offshore administrator; Schulte Roth & Zabel as legal counsel; and Rothstein & Kass as accountant.


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