A former SAC fund manager has bucked the global trend with a new hedge fund launch, even as increasing investor preference for managers with strong track records crimps demand for fledgling funds.
David Fiszel’s Honeycomb Asset Management started managing institutional money last month, and investors include Dan Loeb and the family of his former boss Steven Cohen, according to a person familiar with the new fund. Honeycomb, which bets on public equities, oversees more than $200m.
Honeycomb’s launch stands in sharp contrast to the experience across the rest of the sector. Just 565 hedge funds launched from January through until the end of July, making this year the worst since 2006 when there were 472 new funds over the same period, according to Preqin data. In the seven months ended July last year, there were 902 start-up funds.
“Right now, on average, it’s a buyers’ market,” said Darren Levy, head of capital introductions group for the Americas at Morgan Stanley. “Investors are not as interested in underwriting new launches unless it’s something very compelling.”
Despite weaker demand, some investors have succeeded in attracting capital to debut funds. Early this year, George Soros’s former chief investment officer Scott Bessent raised $4.5bn for his Key Square fund, and former Appaloosa money manager Eric Cole started Warlander Asset Management with more than $1bn.
Other launches expected later this year include Blockhouse Capital, founded by three former PointState Capital managers, and Castle Hook Partners, run by ex-employees of George Soros.
Brandon Haley, who ran global equities at Citadel, is also expected to launch his fund Holocene Advisors later this year, and former Paulson & Co partner Samantha Greenberg will start a long/short equity fund called Margate Capital on October 1, with a $130m seed investment from Raimus.
Some investors are sceptical of committing money to new funds after agreeing to multiyear lock-up periods a few years ago, before suffering from weak returns. In the latest crop of funds, investors have the upper hand and have agreed to more attractive fee terms and shorter lock-up periods.
“There’s a lot of good people with incredible pedigrees — it’s just harder for them to launch,” said Jeffrey Tarrant, founder of hedge fund investor Protégé Partners. “It’s also tougher for them to charge the fees that were usual in this industry. So most of them, when they start, have to have some sort of founder’s fee structure, which is much less than the 2 and 20.”
Despite weak average returns from macro hedge funds, new ones are springing up: in recent months, Convexity Capital’s Edward DeNoble started Frontlight Capital and former Deutsche Bank employees Richard Herman and Louis Jaffe started Montrock48.
Ben Melkman, a former senior trader at Brevan Howard, plans to start a macro fund in the first quarter of 2017 with about $400m, according to a person familiar with the fund.