Hedge Fund Fission

The initiation of fund investments—like all investments—requires both investment appetite and capital access. Like protons and neutrons in an atom, these two components are central to making investments possible. However, what if the bond between capital availability and investment affinity could be broken and each one made to stand alone?

By accessing different investor pools and splitting these pieces apart, a wave of untapped economic energy can be released. A fund manager can use that energy to reach a larger universe of qualified investors and increase its chances of a successful fundraise. The combination of two recent product innovations known as the CVRDN—Collateralized Variable Rate Demand Note— and the Fund Enhancement CPC come together to create a solution that will not only help fund managers attract new investors, but will enhance capital retention efforts with existing ones.

Alternatives to direct investing
Taking a cue from recent history, the modern investor is primarily concerned with poor fund performance, lack of liquidity, failure to achieve stated fund objectives, weak operational controls, reputational/headline risks, and fraud. Investors have addressed these issues by moving toward alternative methods of gaining hedge fund exposure outside the direct investing model, such as investing through funds of funds, managed account platforms, separately managed account vehicles, UCITS and other wrappers. Each of these have inherent drawbacks, including loss of investor control, liquidity mismatches, failed or inadequate due diligence, tracking errors, increased operational costs and unexpected compliance burdens.