Tyler Errickson isn’t planning to compete with the biggest firms in the $5 trillion hedge fund industry — he’s hoping to help them.
Riptide Advisors, Errickson’s new multimanager firm that’s set to start trading on January 1, was created to address the industry’s biggest challenge: a shortage of talented, experienced portfolio managers.
The new manager’s focus, Errickson said, is to be “basically a seeding vehicle” that will let unproven but promising talent — think an analyst at a big firm like Millennium who has never managed a book on their own — run small portfolios of up to $20 million with the goal to add capital and responsibilities over time by graduating to the firm’s larger funds.
“We’re almost a farm league for their major league teams,” he said.
While firms focused on seeding new launches have existed for decades, Errickson’s focus on training young investing talent to learn how to trade in a multistrategy construct is unique. It’s another example of the ripple effects from the dominance of the biggest players, namely Millennium, Citadel, Point72, and Balyasny, that have ballooned in size and swallowed up talent.
As Business Insider previously wrote, there’s a cottage industry popping up of consultants and advisors focused on helping investing talent navigate working at, or getting hired by, these types of hedge funds.
At Riptide, young PMs will need to prove their ability to run a portfolio and make money within a tight risk system; the firm is using Arcana’s risk management platform, designed by former Citadel PM Rich Falk-Wallace. Riptide will then either connect them to allocators in its network that are interested in backing them via a separately managed account or let them continue to trade within the firm.
The PMs at Riptide will be able to own their track records and won’t have any non-compete periods to sit out, Errickson said, so he expects the largest firms will also poach plenty — a reality he not only understands, but is embracing.
“These funds are awash with capital. Talent is what we are all trying to solve for,” said Errickson, who is also the chief investment officer for Lodestone Global, an outsourced investment platform for family offices that is providing capital for the new firm.
Errickson is aiming to raise up to $640 million across three different strategies, adding that the firm is still in conversation with potential “strategic partners.”
$640 million across three different internal strategies
High demand for young talent
The industry has been dealing with a talent war for years, which has driven up costs for talented investors and forced funds to make concessions they wouldn’t have made five years ago. The limiting factor on growth for many of the biggest funds is not capital, but talent who can invest it.
Managers such as Point72, Citadel, and Balyasny have built out training programs and career development paths for younger talent to create a potential pipeline of internal investors. Firms like Millennium, Schonfeld, and Walleye, meanwhile, are increasingly allocating their cash to externally run funds, typically through an SMA, which gives these firms greater insight into trading decisions and control.
Errickson said they have been in conversations with potential strategic partners that could provide capital in exchange for a chance to seed promising talent, but declined to name anyone. The firm plans to launch in the new year with a first class of five young PMs, he said.
It feels counterintuitive for the backers of his firm to fund the development of talent for other managers, but Errickson said the access to emerging talent is a selling point for his LPs. The family offices and RIAs that have invested in his firm likely don’t get access to the biggest managers in the world, which count sovereign wealth funds and pensions as their biggest backers.
Through his platform, his backers are exposed to talent that’s “young, hungry, putting up great performance, working 100 hours a week,” he said. Plus, if a PM launches their own fund thanks to a Riptide connection to an allocator, Riptide will get a chunk of the new fund’s revenues going forward.
But “our vision is always to be smaller” and provide a training ground for the next generation.
“We’re doing everything it takes to get them ready for the big leagues,” he said.
