As assets begin to rumble back non-traditional seeder funds begin the hunt for emerging managers. One of the complaints about seeders by emerging funds seeking âseedâ capital during 2009 has been that they have been too greedy in negotiating partnership terms with managers looking for assets. For New York-based firm Absolute Fund Advisors (AFA) which is looking to allocate upwards of $50m to emerging managers, owning a stake in the firm is not the primary goal nor are they looking for discounted fees. âWe are willing to be the first institutional investors in a fund, and are not looking for an equity stake or discounted fees,â explained Founder Jason Konior. The firm, which has the backing of a large fund of funds, has structured their model around controlling the risk associated with investing in emerging managers. AFA requires all fund managers to put up their own contribution, which the firm then matches on a 9 to 1 ratio (i.e. a manager puts up $1m and AFA contributes $9m). In turn, managers do not charge AFA management fees, but are given an incentive fee rate of 50%. âThe reason we have the 50% incentive fee is because we are not assuming risk,â explained Konior. Losses are taken out of the managerâs capital, and AFA has a backstop of a 9% drawdown, upon which they have the option to liquidate the portfolio. âWe are providing managers an opportunity to run their strategy with Institutional Funding hence enhancing the fundâs marketability and exposure,â he said. Although AFA sources many of the managers it reviews from other seed firms that it has relationships with, the funds it is currently concentrating on are liquid equity and options strategies (i.e., long/short, statistical arbitrage, volatility arbitrage and systematic trades).