The New Trend in PE Fund Seed Investments, Unique Deal Features and Several Options for Seed Sources

For the past 10‑15 years, alternative asset managers have raised day-one capital by pairing with large investors – often an institutional investor, or one or more family offices – in “seed investment” transactions for the initial capital needed to stake their new funds. Those transactions have historically been quite popular in the hedge fund industry, but in recent months, an increasing number of institutional investors have been exploring broadening their seeding mandates to include closed-end funds and GPs of PE funds. Large financial institutions have also signaled that they will pursue seeding PE as a new business line. Further, industry data suggest many of those new entrants are primarily considering structuring their investments as true seed deals, as opposed to more traditional anchor investments. In a guest article, Gerhard Anderson and Nicholas R. Miller, partner and senior associate, respectively, at Seward & Kissel, explore the difference between seeding and anchoring investments, while identifying key terms and structuring considerations for seed deals. The article goes on to identify several sources of seeding opportunities, as well as the attendant benefits and issues associated with each. See our two-part series on a Seward & Kissel study examining key terms in seed deals:  “Structuring the Seeder’s Interest, Key Person Covenants and Lock-Ups” (Oct. 12, 2017); and “Consent Rights, Indemnification and Manager Buyout Rights” (Oct. 19, 2017).

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