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

Ewald, C. and Zhang, H. (2016) Hedge fund seeding via fees-for-seed swaps under idiosyncratic risk. Journal of Economic Dynamics and Control, 71, pp. 45-59. (doi:10.1016/j.jedc.2016.07.007)

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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.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Ewald, Professor Christian and Zhang, Mr Hai
Authors: Ewald, C., and Zhang, H.
College/School:College of Social Sciences > Adam Smith Business School
College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Economic Dynamics and Control
Publisher:Elsevier
ISSN:0165-1889
ISSN (Online):1879-1743
Copyright Holders:Copyright © 2016 Elsevier B.V.
First Published:First published in Journal of Economic Dynamics and Control 71: 45-59
Publisher Policy:Reproduced in accordance with the publisher copyright policy

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