A new hedge fund launching next year hopes to be the ‘farm team’ for the $5 trillion industry

• Riptide Advisors, a new multistrategy hedge fund, plans to hire unproven talent as portfolio managers.

• The young PMs who succeed will get more capital and a pathway to start their own firm.

• Tyler Errickson, the firm’s founder, said he envisions the fund as the minor leagues of the industry.

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.