Hedge fund seeding via fees-for-seed swaps under idiosyncratic risk

Christian-Oliver Ewald, Hai Zhang

Research output: Contribution to journalArticle

1 Citation (Scopus)
15 Downloads (Pure)

Abstract

We develop a dynamic valuation model of the hedge fund seeding business by solving the consumption and portfolio-choice problem for a risk-averse manager who launches a hedge fund through a seeding vehicle. This vehicle, i.e. fees-for-seed swap, specifies that a strategic partner (seeder) provides a critical amount of capital in exchange for participation in the funds revenue. Our results indicate that the new swap not only solves the serious problem of widespread financing constraints for new and early-stage funds (ESFs) managers, but can be highly beneficial to both the manager and the seeder if structured properly.
Original languageEnglish
Pages (from-to)45-59
Number of pages15
JournalJournal of Economic Dynamics and Control
Volume71
Early online date5 Aug 2016
DOIs
Publication statusPublished - 31 Oct 2016

Keywords

  • hedge funds
  • investment
  • real options
  • risk-averse
  • portfolio-choice
  • consumption
  • dynamic valuation model
  • seeding vehicle
  • early-stage funds managers

Fingerprint Dive into the research topics of 'Hedge fund seeding via fees-for-seed swaps under idiosyncratic risk'. Together they form a unique fingerprint.

  • Profiles

    Cite this