Lawyers for Emerging Hedge Fund Managers Need Deep Experience

The landscape for emerging hedge fund managers has changed dramatically after more than a decade of difficult fundraising conditions. Capital allocations from large multi-manager platforms, institutional investors, and sophisticated seeding funds have become—as one industry veteran put it—the “rocket fuel” for startup hedge managers. According to S&P Global Market’s Hedge Fund Outlook 2026, these deals are ushering in a potential golden age of new firms.

For lawyers who guide emerging hedge fund managers, this new environment requires a different skill set. Emerging managers need to ensure that the lawyer they hire is an experienced deal lawyer, qualified to negotiate on their behalf with the most sophisticated hedge fund investors, not only to prepare their fund documents.

Emerging hedge fund managers must be agnostic as to which products to launch and in what sequence. The same applies to their lawyers, who shouldn’t push for building a fund structure prematurely. “If you build it, they will come” doesn’t apply to hedge funds anymore, if it ever did.

The stereotype of a startup hedge manager used to be “two guys and a Bloomberg terminal” raising initial money from friends and family. If things went well, they would turn next to ultra-high-net-worth investors and family offices.

With a good track record, they could begin attracting institutional investors and even global allocators. The post-Great Financial Crisis regulatory burden, coupled with rising costs for talent, technology, data, research, and office space have rendered that playbook obsolete. In the current marketplace, achieving scale as early as possible has become more important than ever.

Today’s most successful first-time hedge fund managers need to consider a grab bag of structures. Managers may begin with a separately managed account, or SMA—maybe two or three of them—on day one.

They also may simultaneously launch a commingled fund, or wait a year or more to do so after establishing a standalone track record. And they may take a seed deal. This multi-product approach is especially helpful for systematic traders who face particularly high costs, especially for talent and data.

The SMA part of this trend isn’t new. Institutional investors have long favored SMAs because they like direct ownership of assets, real time transparency, and customized reporting. Traditionally, they also enjoyed discounted fees and better liquidity.

But the most powerful new accelerant is being supplied by multi-manager platforms, which are coming off a banner 2025. These firms, once focused almost exclusively on internal pods, now face stiffer competition than ever for portfolio managers.

This has led them to make external allocations to independent hedge fund managers, allowing platforms to access additional talent and strategies that they may not have been able to build internally. It also gives them the opportunity to share in revenue earned by outside managers from managing third-party capital.

This development has put the platforms in direct competition with traditional seeders, especially when it comes to managers with market-neutral strategies. Seeders have been adapting by focusing on strategies that don’t fit as neatly into the platforms.

One of the main benefits to an emerging manager of doing a seed deal is that seeders will typically invest in a fund (rather than through an SMA). This guarantees that a commingled fund will be part of the manager’s product mix from the beginning.

For lawyers representing today’s emerging managers, deal experience has become necessary, yet it isn’t sufficient. Successfully negotiating with platforms and seeders requires a lawyer with in-depth knowledge of hedge fund terms and management company structures. Understanding how hedge fund management businesses work and thrive is critical.

The most important thing is for legal counsel to have had exposure to enough deals and fund launches to be able to help the manager work through the main issues, while taking a commercial approach.

For example, capacity rights are the main driver for many institutional investors to invest early, allowing them to reserve the right to invest with an emerging manager in the future at favorable fees. But granting too much capacity at fees that are too low can jeopardize a manager’s viability. Investors increasingly defer favorable fees until the manager reaches scale, then make up the difference later.

In terms of information rights, there is a need to balance investor transparency needs with alpha protection. Allocators want position-level data for hedging and portfolio integration. Meanwhile, managers must ensure agreements define what can be viewed—and what can and can’t be used—especially by other managers on a platform.

Running SMAs alongside a commingled hedge fund introduces another challenge: liquidity harmonization. SMA investors often have better transparency and inherent liquidity. A sudden SMA exit can force expenses onto a smaller capital base; caps can push costs onto the manager. The cure is disclosure and planning so SMA terms don’t destabilize relationships with other investors.

The current macro backdrop makes this moment even more compelling for hedge fund investing. As interest rates decline, the opportunity set for liquid equity strategies grows. Lower rates improve market liquidity, making it easier to monetize relative-value trades.

They increase dispersion as sectors and factors respond unevenly, creating fertile ground for traders. And they accelerate event cycles—mergers and acquisitions, initial public offerings, buybacks—all creating opportunities for hedge funds.

The hedge fund startup boom won’t last forever. But it is very much here now, with platform allocations ascendant, SMAs mainstream, seed capital smarter, and rates trending lower. Emerging managers should seize the moment and make sure they have the right lawyers at their side, helping them succeed at scale.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Max Karpel is a partner at Akin, advising hedge fund managers and investors on platform deals, seed transactions, separately managed accounts, and commingled hedge fund launches.

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