Seward & Kissel Seed Investments Study Highlights Shift Toward Illiquid Strategies
11th Annual Study Also Shows Deals Trending Toward “Manager-Friendly” and “Third-Party Investor-Friendly” Structures
Our 2024 observation period indicated an extension of a number of trends in investment fund seeding transactions that we have been tracking for more than a decade. First, institutional seeders continued to represent an outsized share of observed seed transactions – importantly, acting as the driving force behind a significant increase in the observed median check size, as well as continuing to focus on ensuring a high degree of alignment between the manager/GP, the seeder, and third-party investors. Second, seed investments were nearly as likely to be made in private equity/private credit and other illiquid or less-liquid strategies, as opposed to the historical significant overweighting of seed investments in hedge funds and similar highly liquid products. Overall, observed activity was steady year over year, with institutional seeders again being the most active participants
Key observations:
- Institutional Seeders Dominate: Institutional investors continued to lead seeding activity, driving up median check sizes and emphasizing alignment among managers, seeders, and third-party investors.
- Shift Toward Illiquid Strategies: Seed investments increasingly targeted private equity and private credit strategies, signaling a move away from the historical focus on hedge funds and liquid products.
- Evolving Deal Terms: Illiquid fund structures are reshaping seed deal terms, with more variance and innovation emerging as the market matures.
- Manager Incentives and Long-Term Orientation: Structured incentives encouraged managers to build sustainable businesses and align with long-term investor interests.
- Trend Toward Alignment and Risk Management: Seeders are more willing to share start-up costs and adopt investor-aligned liquidity terms, while also seeking protections against market volatility.
For more information about the current state of seeding, or seed transactions generally, contact your primary attorney at Seward & Kissel.
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