By Niki Natarajan
Pinocchio is the story of a wooden puppet that
became a real boy after he had proven himself. Until now, many
start-up hedge funds have disdainfully viewed incubators as the
hedge fund equivalent of being a marionette, rather than a leg
up to being a real hedge fund.
This myth was, in part, perpetrated by prime brokers that in
the past divided hedge fund prospects into an A-list and
B-list, with the latter being sent off to the seeding and
incubating platforms, and the former, being coveted for future
trading returns, introduced to the big investors. But following
the market collapse, the capital introduction function at prime
brokers has changed, and so too the profile of the hedge funds
that they will actually work with these days.
Seeding itself, which does not have to involve equity
stakes, has always been an essential part of hedge fund