To participate in the hedge fund bonanza, you can manage a fund, run a fund of funds, or arrange financing for people you think can do it better.

That last approach -- providing seed capital to new managers without necessarily investing in their portfolio -- is the route SkyBridge Capital has chosen with a big-name partner, Michael Dell. The rewards in this semi-obscure line of work can be big, as seed-capital providers usually end up with a cut of a hedge fund's management fee.

SkyBridge Capital is a seeding firm created last year by Anthony Scaramucci, co-founder of Oscar Capital, a hedge fund acquired in 2001 by Neuberger Berman; and Andrew Klein, co-founder of Soleil Securities Group. The firm signed up its first two managers last week.

Dell participates in SkyBridge's business via his MSD Capital, which is to say, with his own money. With more than $10 billion under management, the eight-year-old MSD is not a rookie player in hedge fund investing. MSD is run by Glenn Fuhrman, former head of Goldman Sachs' ( GS ) Special Investments Group, and by John Phelan, a former principal at Ed Lampert's ESL Partners. The wealth management shop has invested money with top-notch managers including ESL.

A classic example of a successful seeder is Julian Robertson, founder of Tiger Management, who discovered giant talents such as Maverick Capital's Lee Ainslee or Lone Pine Capital's Stephen Mandel, the so called "Tiger cubs" who used to work with him.

More modern types include FrontPoint Partners, said to be a potential acquisition target for Morgan Stanley ( MS), and Paloma Partners, whose back-office operations have recently been acquired by JP Morgan ( JPM). The fact that big investment banks eye these operations shows that they are a growing and significant part of the hedge fund landscape.

Point Break

Speaking of FrontPoint: rumor has it that the negotiations with Morgan Stanley have come to a standstill. An executive at Morgan Stanley says that a deal with a hedge fund firm is likely to be announced in the next few weeks, but it wasn't clear he was referring to FrontPoint.

The plot thickened after $2 billion Ivory Investment Management, a Los Angeles-based hedge fund run by Curtis MacNguyen, announced its separation from the $6.5 billion FrontPoint's hedge fund seeding platform. That represents roughly a third of FrontPoint's business walking away and could be a deal-breaker, although a hedge fund veteran speculates that the negotiations with Morgan Stanley are on pause for another reason, price. A spokesperson at FrontPoint declined to comment. A Morgan Stanley's spokesman did not return calls.

Active Activist

Pirate Capital, a Connecticut-based activist hedge fund, filed a proxy statement last week against GenCorp ( GY), seeking board representation for three of its nominees: David Lorber, a Pirate analyst; Todd Snyder, a former managing director at Rothschild; and Robert Woods, an ex-investment banker at real estate outfit Cornerstone Capital.

Pirate says in its filing that it is concerned by the company's poor financial performance since Terry Hall, its chief executive, came on board at the end of 2003. Pirate is the second-largest shareholder of GenCorp with an 8.5% stake. The company, which operates as a technology-based manufacturer, is organized in two segments, aerospace/defense and real estate.

The filing notes GenCorp reported shareholders' equity of $360 million for fiscal 2002, $428 million for fiscal 2003, and $141 million for fiscal 2004, dropping to a deficit of $73 million for fiscal 2005. Pirate asks for corporate governance reforms, including the annual election of directors, the elimination of the company's poison pill and the separation of the role of chairman and chief executive.

Pirate has been an investor in GenCorp since August 2004, but the activism really took off last fall. On Oct. 28, the hedge fund requested to declassify the board, and on Jan. 13, it sent a letter notifying the company of its intent to nominate three of its candidates as directors. GenCorp wrote back announcing its plan to oppose declassification.

The stock more than doubled in price since the announcement of Terry Hall's appointment on Nov. 19, 2003, from $9.68 to $19.26 on Friday close.

But so far, the agitation has not provided much support for the stock. In fact, it's down 32% from Oct. 28, when Pirate began its campaign. A spokeswoman at GenCorp declined to comment. A call to Pirate was not returned.

Pirate is currently engaged in another activist battle against Angelica ( AGL), a company that provides laundry services for hospitals, clinics and other long-term care facilities. It has a 10.65% stake in the company and has joined forces with Steel Partner, another activist, to push for board changes.

Hot Toys

Hedge funds are the new toys of Wall Street. Somehow, everyone wants to play with them. Banks want to grow their prime brokerage operations because hedge funds make up a huge number of daily trades on any given exchange. Asset managers badly need to buy hedge funds in order to offer long/short funds to their wealthy clientele. Even private equity firms are game.

Three examples illustrated those trends last week. Jefferies &Co. ( JEF) poached a six-person team from Banc of America Securities to beef up a prime brokerage business that needed to be revitalized. Prior to the hires, Jefferies' prime brokerage business was merely a clearing operation, and not much of a sales trading and execution platform that it now aims to be. The new group will be led by Glen Dailey, who was a chief operating officer at Banc of America's prime brokerage.

On the asset-management side, Schroders, the U.K.-based asset manager, announced that it bought $2.5 billion fund of funds NewFinance Capital, for $101 million, with a further $41 million contingent on certain revenue targets.

And GSC Partners, a $9 billion shop, investing in relatively illiquid instruments such as collateralized debt obligations, nabbed Robert Paine from Stanfield Capital Partners, to manage a distressed-debt hedge fund.

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