After a fraught two-year money-raising period, the former head of Merrill Lynch’s proprietary credit trading operation, Mark Devonshire, has secured backing for his new hedge fund, MCapital.
Mr Devonshire, one of the world’s top distressed debt traders, has received a €50m seed investment from the Italian private equity fund of funds Advanced Capital, according to people familiar with the plans.
The move will allow MCapital to begin raising money from regular investors for its launch – which has already been postponed twice.
The launch of the Hong Kong-based firm by Mr Devonshire and a team of former Merrill Lynch debt traders had been anticipated as one of the post-crisis industry’s biggest. It was originally expected to raise as much as $300m in 2009 with a further $1bn in investor commitments to follow. At such a size, MCapital would have been one of the biggest fund launches globally.
But Mr Devonshire’s difficulties since then have underscored how tough it is to raise money in the current environment, even for top-flight traders, and how it remains a far cry from the industry’s boom-time in 2007, when start-up funds could command billions in day-one capital.
MCapital’s first seed investor, the hedge fund platform Harbour Capital, was forced to shut down after its financial backer pulled out in April 2009.
Talks with big-ticket pension fund investors later in the year then failed to come to fruition because seed investors – who typically take a stake in the hedge fund management company, rather than the fund itself – were scarce.
The availability of seed capital has increased markedly in recent months, however, and many in the industry expect a number of new fund launches this year as a result.
Hedge fund launches were dominated last year by large start-ups by bank “prop” teams similar to Mr Devonshire’s.
Prop teams operate like internal hedge funds, speculating using a bank’s own capital. But these activities are now being curtailed by banks in order to comply with new US legislation.
Goldman Sachs in particular has spawned several big new funds. European traders in its Principal Strategies unit, led by Pierre-Henri Flamand, launched Edoma Capital with $1bn last year. The unit’s global head, Asia-based Morgan Sze, meanwhile raised even more for his new venture Azentus earlier this year in the biggest launch since 2007.