Blackstone Said to Get $1.5 Billion to Seed New Hedge Funds

  • Firm has raised $5 billion since 2007 to give startup capital
  • BAAM unit also manages $3.3 billion fund buying equity stakes

Blackstone Group LP gathered about $1.5 billion to provide startup capital for new hedge fund managers, people with knowledge of the matter said, as the alternative-asset giant continues to make bets on the industry’s growth.

Blackstone set a lower target for Strategic Alliance Fund III than for its predecessor fund as it saw fewer opportunities for seeding new managers, said the people, who asked not to be named because the process was private. The firm’s second fund for the strategy finished collecting $2.4 billion in 2011.

A spokeswoman for New York-based Blackstone declined to comment on fundraising.

The 2011 fund hit a sweet spot for the seeding industry, as new regulations such as Dodd-Frank and the Volcker Rule put pressure on banks’ proprietary trading desks and led traders to leave and start a wave of new funds. Blackstone started the strategy in 2007 and got $1.1 billion for its first fund.

The estimated number of hedge funds peaked at about 8,500 in 2015, according to Hedge Fund Research Inc. There were about 8,300 as of the fourth quarter, according to HFR, as more funds shuttered than were started in 2016 and 2015. The industry’s estimated assets reached a record $3 trillion in the fourth quarter.

Blackstone competes to seed new hedge funds with firms such as Reservoir Capital Group, Protege Partners, Paloma Partners, Stable Asset Management and NewAlpha Asset Management, as well as banks like Goldman Sachs Group Inc. TPG, the alternative-asset manager that oversees about $75 billion, disclosed in October that it will provide startup capital to three former Sequoia Capital traders who are starting a long-short hedge fund called Arrow Ridge Capital.

McGuire, Bannasch

Blackstone’s seeding funds have provided money to managers such as Jason Brown, the former head of Goldman Sachs Group Inc.’s global special situations group, and Beau Taylor, the former global head of commodity proprietary trading at Credit Suisse Group AG.

Other recipients of Blackstone’s startup capital have included Mick McGuire’s Marcato Capital Management, Eric Bannasch’s Cadian Capital Management and Nick Taylor’s Senrigan Capital Group. Mark Black’s Raveneur Investment Group and John Wu’s Sureview Capital were seeded by Blackstone and have since shut down.

The seeding funds are housed in Blackstone’s hedge-fund business, Blackstone Alternative Asset Management. Known as BAAM, the group has mainly allocated client capital to existing hedge funds, including Chris Rokos’s Rokos Capital Management, Steve Cohen’s former firm SAC Capital Advisors and Peter Muller’s PDT Partners.

BAAM, led by billionaire Tom Hill, managed $71.1 billion as of Dec. 31. In addition to allocating client capital to hedge funds and seeding new managers, the group manages a $3.3 billion fund called Strategic Capital Holdings, which buys equity stakes in hedge fund firms. It owns parts of Marathon Asset Management, Magnetar Capital Partners, Solus Alternative Asset Management and Senator Investment Group.

The seeding and stakes strategies are overseen by Scott Soussa, who’s been at Blackstone since 2003. Greg Hall, who previously co-led the funds with Soussa, left last year, saying he wanted to try something new.

In December, Blackstone closed its two-year-old, in-house Senfina Advisors fund, which had $1.8 billion and allocated money among 11 portfolio managers. The fund lost 24 percent in 2016 after gaining 21 percent the previous year.

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