Need seed money for your hedge fund? Consider asking Goldman Sachs

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The world of hedge funds is changing. There are more managers out there, it costs more money to start a fund, and because of the Volker Rule, banks are now limited in the amount of money they can invest or trade in hedge funds.

But Goldman Sachs is still going to make it work, says the Wall Street Journal, by starting its own fund of funds.

The bank has already raised about $600 million from clients to start 8 to 10 new hedge funds, and it’s planning on handing new fund managers $75 million to $100 million to start their businesses.

Back in the bad old days (before the crises), starting a hedge fund cost about $20 million to $50 million. But now back of office costs, legal fees and trading costs have driven those numbers up.

Investors are more cautious about throwing their money around too. They want a brand name backing up their investment — a brand like Goldman Sachs. Plus, investors want to know the money managers they’re trusting are really smart enough to deserve the standard 20% of returns they take from the hedge fund’s revenue.

We don’t know how much Goldman will take from each fund, but we do know they’re taking this out of house because they’ve been burned with hedge funds before. Goldman’s Global Alpha Fund L.P. (which had $12 billion in assets including the firm’s own money) and its Global Equity Opportunities fund (which got an emergency $3 billion investment this summer) both shut down this year.

So far, Goldman’s handed $100 million to Palestra Capital Management LLC, a “long-short” equity fund started by Jeremy Schiffman and Andrew Immerman.

But who knows, maybe the bank will hand money to these guys too.

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