Canada’s largest pension fund to seed more hedge fund start-ups

Move aims to diversify investments

Canada’s largest pension fund to seed more hedge fund start-ups

Canada’s largest pension fund will seed more start up hedge funds this year as it broadens a program that aims to diversify its investments.

The Canada Pension Plan Investment Board, or CPPIB, will spread funding among more firms as part of its emerging manager program by reducing the starting amount they invest with each fund, according to people familiar with the matter. Each will receive amounts starting from $50 million, down from $100 million, said the people, who asked not to be identified because the details are private.

A spokesperson for the Canadian pension fund declined to comment. 

The financing offers a lifeline to hedge fund startups capital raising in an environment where an increasing number of investors are migrating toward the largest, most established players in the industry. Multi-strategy hedge funds - that rely on group of traders to produce steady returns - have been among the biggest beneficiaries of the trend, while individual traders striking out on their own are finding capital raising much harder. 

Typically, CPPIB, which manages C$570 billion ($433 billion) in assets, will get a portion of the firm’s revenue in exchange for its backing. The program has previously agreed around three to five deals a year, and executives meet with more than 200 new managers a year, the people said. 

The move will also allow CPPIB to diversify its risk profile as part of its broader investment strategies, as tougher credit conditions wreak havoc on fund performance. More than 2,500 hedge funds have shuttered over the last five years, exceeding launches during the period, according to data compiled by Hedge Fund Research Inc.

The pension fund will continue to allocate larger investments of up to $300 million as part of its broader allocation strategy, one of the people said.

CPPIB invested $200 million in former Anchorage Capital Group sector head Jonathan Carter’s new hedge fund BlackBarn Capital Partners last year, and also seeded Boundary Creek Advisors, a hedge fund founded by former BlueMountain Capital Management traders.

The firm had previously backed hedge fund BirchLane Capital, which started returning investor cash last year while liquidating tens of millions of dollars in complex and hard-to-sell debt.