Two hedge fund groups, Tuckerbrook Alternative Investments and HARDT Group Advisors, are joining forces to create HT Capital Corporation, a hedge fund seeder/incubator which will seek to go public with a $300 million offering of it securities. The IPO will be underwritten by Jeffries and Company, will be listed on the NYSE, and go by the symbol “HTG.”
HT Capital Corporation plans to use approximately $200 million to seed/incubate an initial stable of 8 promising hedge fund managers. The company will then seed an additional 10 managers within the 12 months after the IPO with proceeds from the IPO as well as a credit facility. HT Capital Corp. will invest in emerging managers through senior loans to the management company and participating interest (equity) investments in the hedge fund management company. These two types of investments are expected to produce four different revenue streams:
1. an 8.5% quarterly cash interest payment on the senior loan
2. a share of the management company’s management fees (expected to grow as AUM grow)
3. a share of the management company’s performance allocation (with the potential for such performance allocation to increase as AUM grow)
4. a stake in any sale of the hedge fund management company
The company will invest in emerging hedge fund management companies; the below statement comes from their N-2 filing with the SEC:
We plan to diversify across the following three distinct stages of emerging management companies:
“Incubation-stage” management companies, which will generally have few or no assets under management at the time of our investment, but may have, for example, an investment manager who recently came from the trading desk of a larger firm or established an investment track record in another firm’s name. We generally expect to provide incubation-stage management companies with between $5 million and $10 million of senior loans and a participating interests investment of typically about $1 million.
“Early-stage” management companies, which will generally have an investment track record of between 6 months and 24 months and between $5 million and $25 million of assets under management at the time of our investment. We generally expect to provide early-stage management companies with between $10 million and $25 million of senior loans and a participating interests investment of typically between $1 million and $2 million.
Acceleration-stage” management companies, which will generally have an investment track record of between two and three years and between $25 million and $100 million of assets under management at the time of our investment. We generally expect to provide acceleration-stage management companies with between $25 million and $50 million of senior loans and a participating interests investment of typically between $1 million and $2 million.
Hedge fund incubation platforms are becoming more and more popular as reports indicate that small and emerging managers present larger investors with the greatest opportunity for the most attractive returns. By participating in an incubation program as well, the investor will have the opportunity to allocate more assets to the manager in the future – a potentially valuable future right.