Chief operating officer of FRM Capital Advisors, a hedge fund seeding company, cites dwindling seed capital and availability of high quality managers as main change since financial crisis.

Two fundamental changes have had a huge impact on the seeding of hedge funds since the financial crisis, according to Patric de Gentile-Williams, chief operating officer of FRM Capital Advisors, the hedge fund seeding division of $9.5 billion fund of hedge fund manager Financial Risk Management.

De Gentile-Williams said since the crisis it is impossible to launch a hedge fund without a “day one cornerstone investor”. The demand for seeding is much stronger with the most talented managers now more open to investors like FRM as the supply of seed capital has fallen off since the financial crisis.

Speaking at the GAIM International 2011 conference in Monaco, de Gentile-Williams said the financial crisis greatly reduced the number of seeders. Many investment banks that had been acting as seeders needed capital back to focus on core business as they became stressed in 2008.

The introduction of the Volker rule and the Dodd-Frank Act has drastically reduced the ability of investment banks to get back into seeding. “There is huge demand from the most talented managers and at the same time a huge reduction in capital. It is a luxury to choose who to allocate to,” said de Gentile-Williams.

The company which has seeded eight hedge fund managers since starting operations in 2008, recently announced its latest strategic relationship with Eagle River Asset Management, a New York based hedge fund manager headed by Michael Pascutti who was a founding partner at Sandelman Partners. Before Sandelman, Pascutti spent five years with Citadel Investment Group where he served as head of US convertibles. Most recently he ran a convertible bond portfolio at Pimco.

With FRM’s contribution Eagle River Asset Management has total assets under management of over $100 million. A US endowment was another major investor in the start-up fund alongside FRM.

Typically FRM seeds in the region of $50 million to new managers.

Eagle River is an event driven manager using fundamental credit research to profit from corporate events such as mergers, acquisitions, refinancings, litigation, tenders and restructurings including security optionality related to such events. The company was founded in October 2010.

Pascutti re-united with two of his former colleagues, Ben Esty and Jim McNeil, and have been joined by Jonathan Bloom as chief operations officer as well as two other team members. The company began managing external capital in May 2011.

De Gentile Williams said he believes FRM will be seeding at least two and possibly three other management companies before the end of the year. The target is to seed around four managers a year, although that target has not yet been hit because of the financial crisis. However, de Gentile-Williams is optimistic the company will hit its target in 2012 and could seed even more managers if conditions are right.

He said it was important to target managers able to build asset management companies for the long term. FRM, he said, adds value by being a “soft” adviser on such things as operational and infrastructure needs as well as being a major funding source to kick-start managers.