Protege Partners: The Capacity Challenge

By: Randolph B. Cohen and Brian J. Delacey

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Synopsis: In February 2005, Jeffrey Tarrant (HBS '85) and Ted Seides (HBS '99) considered their strategy for Protege Partners, founded in July 2002 as a fund of hedge funds (FOHF) specializing in small hedge funds. Protege's assets under management had grown to $1.1 billion, and Protege's development almost exactly mirrored the founders' expectations from 2001. Although the founders saw benefits to growth, they remained committed to the integrity of managing a small fund and wanted to continue generating superior performance for their clients. Should they close the Protege FOHF to new investors and focus on managing the existing assets as they originally intended? Could they continue to increase assets under management without taking on more top-level professionals? Should they hire additional analytical staff to help them grow Protege? Should they leverage Protege's special relationships with seeded managers to create a multistrategy hedge fund? Perhaps most important, how would their valued clients react to change?