Hedge Fund Launches Gain Momentum (GS, DB, CS)

Investors' appetite for hedge-fund start-ups is slowly returning, although managers typically are raising relatively small amounts and some are granting concessions on key terms. The pace of new fund launches has picked up after plunging dramatically in late 2008, underscoring a broader trend of money generally flowing back into the sector. In the third quarter, 173 new funds launched, compared with 119 in the previous quarter and just 42 in the last three months of 2008, according to Chicago data-tracker Hedge Fund Research Inc. Bankers who provide services to hedge funds say there are a number of new launches in the pipeline.

However, the pace of new openings is way down from a few years ago. John William, global co-head of prime brokerage at Goldman Sachs Group Inc (NYSE: GS), said that the size of the opening capital base is quite a bit smaller than it has been historically.

Among this year's largest launches is London-based Tony Chedraoui's Tyrus Capital LLP, whose fund launched in mid-October with more than $800 million in assets. Arvind Raghunathan's Roc Capital Management LP in New York is managing about $1 billion since launching this year, which at least initially included about $500 million from his former employer Deutsche Bank AG (NYSE: DB). And, in one of Asia's largest launches, Hong Kong-based Nick Taylor's Senrigan Capital Management Ltd launched its fund in early November with about $220 million, including about $150 million from Blackstone Group LP.

The traditional model of charging a management fee based on 2% of assets and a performance fee of 20% of gains remains "a benchmark" for pedigree managers with established track records, says Edgar Senior, global head of capital services at Credit Suisse Group AG (NYSE: CS). However, some managers—particularly less well-known ones— are offering fee breaks in an effort to attract capital.