Temasek plants US$500m seed to grow hedge funds

Singapore

ARE you a capable investor too put off by today's compliance burdens to start your own hedge fund?

Temasek Holdings has news for you.

The Singapore sovereign wealth fund is putting US$500 million with homegrown hedge fund Dymon Asia Capital to place with new hedge funds and, just as importantly, allow the new funds to piggyback on Dymon's back-end support.

"The proposition is not just providing seed capital," Dymon president Jay Luo told The Business Times. "Leveraging Dymon's already established infrastructure . . . we think is quite important and quite unique."

A global equity long-short fund with a focus on the Asia-Pacific will be the first to receive money under the venture with US$150 million of seed money provided by Temasek and the partners of Dymon and the new fund. The Port Meadow Fund will be managed by Carl Vine, a veteran of SAC Capital.

Temasek spokesman Stephen Forshaw told BT that Temasek, which will become the holder of a "significant minority stake" in Dymon via its commitment to the venture, remains focused on directly owning equity in companies and third-party hedge fund investments form only a small proportion of its portfolio.

But the Dymon deal gives Temasek an early foot in the door, he added. "We principally invest in funds for two reasons. One is it gives us exposure to new asset classes, sectors or geographies that we aren't invested in ourselves. And two, it brings co-investment opportunities that we otherwise might not get on our own. We see these funds as early-stage opportunities to co-invest in companies in the future."

Mr Luo, who will be managing the new venture with Ben Freischmidt, the former co-manager of GLG Partners' Asia Long/Short strategy, said that it was becoming increasingly hard to start a hedge fund from scratch.

"Asia does not lack good managers who can make money in different markets", but the low starting point for most funds dollar-wise makes it harder for new managers to get to a critical size of about US$500 million to attract significant institutional money, he said.

But while other bluechip hedge funds such as BlackRock are also active providers of seed capital, Dymon hopes to go a step further and help with back-end support. That is a recognition of the immense task of complying with new rules and having risk-averse investors after the global financial crisis.

"In a typical hedge fund set-up, the new manager in the first year tends to spend half his time on non-investment related work. That's just the nature of running a business. But that can be hugely distracting, and it's not good for the limited partner and for the hedge fund manager."

This is not the first collaboration between Temasek and Dymon. In 2012, Temasek placed $100 million with Dymon as a limited partner to start a new private-equity fund focused on Singapore small and medium-sized enterprises.