The credit crisis of 2008 has taught hedge fund managers that growing assets under management too quickly can hurt their performance. Some small and mid-sized funds are closing to new investors. They include Lakewood Capital Management, Route One Partners, Lobos Capital, Brenner West Capital Advisors, Jericho Capital and Redmile Group. Small funds can get in and out of positions quickly and concentrate on their best ideas. With too much assets under management, managers have to find investments. At times, there may not be enough great ones so managers invest in "fair" ideas. This lowers their returns.
To attract investors, smaller funds have to use top tier firms for their prime broker, fund administrator, legal and accountant/auditor. Institutional investors are using seeding funds to invest in the smaller hedge funds. They exchange capital for a portion of the hedge fund's business. Some firms that do this are Blackstone, Goldman Sachs and Reservoir Capital.
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