A recent study finds that a significant number of hedge funds launched last year received seed capital, but no new fund sought investments through advertising.
The study by Seward & Kissel, a law firm, found that some 40% of 2013 hedge fund rollouts greater than $75 million (about 15% of all fund launches) obtained seed capital.
In addition, 43% of funds in the study had some form of founders’ capital.
The study said prominent new firms entered the seeding arena in 2013, joined by several smaller opportunistic one-off investors, such as family offices and high-net-worth individuals.
Seed investments in many of the bigger deals tended to be in the $75 million to $150 million range, typically with a two- to three-year lockup. Smaller deals, usually with less well-known managers, generally attracted seed capital in the $10 million to $50 million range.
No fund in the study engaged in general solicitations and advertising, which is now permitted under the JOBS Act by Securities Act Rule 506(c).
Seward & Kissel said its study covered the 2013 hedge fund launches sponsored by U.S.-based managers that were its clients. It said the number of funds was “large enough to extract a representative sample of important data points that are relevant to the hedge fund industry.”