Blackstone Group LP gathered about $1.5 billion to provide startup capital for new hedge fund managers, people with knowledge of the matter said, as the alternative-asset giant continues to make bets on the industry’s growth.
Blackstone set a lower target for Strategic Alliance Fund III than for its predecessor fund as it saw fewer opportunities for seeding new managers, said the people, who asked not to be named because the process was private. The firm’s second fund for the strategy finished collecting $2.4 billion in 2011.
A spokeswoman for New York-based Blackstone declined to comment on fundraising.
The 2011 fund hit a sweet spot for the seeding industry, as new regulations such as Dodd-Frank and the Volcker Rule put pressure on banks’ proprietary trading desks and led traders to leave and start a wave of new funds. Blackstone started the strategy in 2007 and got $1.1 billion for its first fund.
The estimated number of hedge funds peaked at about 8,500 in 2015, according to Hedge Fund Research Inc. There were about 8,300 as of the fourth quarter, according to HFR, as more funds shuttered than were started in 2016 and 2015. The industry’s estimated assets reached a record $3 trillion in the fourth quarter.
Rokos, Bannasch
Blackstone’s seeding funds are housed in the firm’s hedge-fund business known as Blackstone Alternative Asset Management, or BAAM. They have provided money to managers such as Chris Rokos, the Brevan Howard Asset Management co-founder who left that firm in 2012, and Jason Brown, the former head of Goldman Sachs Group Inc.’s global special situations group.
Other recipients of Blackstone’s startup capital have included Mark Black’s Raveneur Investment Group, John Wu’s Sureview Capital and Beau Taylor’s Taylor Woods Capital Management. Mick McGuire’s Marcato Capital Management, Eric Bannasch’s Cadian Capital Management and Nick Taylor’s Senrigan Capital Group were also seeded by Blackstone. Raveneur and Sureview have since shut down.
Blackstone’s hedge fund business, led by billionaire Tom Hill, managed $71.1 billion as of Dec. 31. In addition to allocating client capital to hedge funds and seeding new managers, the group manages a $3.3 billion fund called Strategic Capital Holdings, which buys equity stakes in hedge fund firms. It owns parts of Marathon Asset Management, Magnetar Capital Partners, Solus Alternative Asset Management and Senator Investment Group.
Greg Hall, who co-led the seeding and stakes funds, left Blackstone last year, saying he wanted to try something new. Scott Soussa, who’s been at the firm since 2003, became sole head of the strategies.