Sequoia Capital working on hedge fund

Sequoia Capital has hired a hedge fund veteran to be part of what once source says will be a $750 million hedge fund operation.

Separately, the early stage firm has hired a former chief investment officer from Stanford University’s endowment to work with its growing network of funds.

The firm declined to comment on the new hires or on the details of any proposed, new fund.

Sequoia hired Michael Beckwith, a former principal with tech hedge fund Maverick Capital, and placed his biography on its website. The firm has been looking to develop a hedge fund, according to two sources, who point to the hire of Beckwith as an indicator that the firm is well on its way toward reaching that goal.

Sequoia has looked to hire investment professionals with hedge fund experience since at least late fall 2007, one source says. The proposed target for its fund size has varied, but it has reached as high as $750 million dollars, according to a hedge fund investor familiar with Sequoia’s plans.

Sequoia’s involvement in a hedge fund is not as strange as it sounds. The firm has close ties with San Francisco-based hedge fund Artis Capital. The two firms have co-invested in YouTube, AdBrite and Aruba Networks, among other companies. Artis’ involvement in early stages deals has coincided with more and more hedge funds, such as Alliance Bernstein, D.E. Shaw Group and The Galleon Group, which have all moved more aggressively into venture investing.

“I’ve always been surprised Sequoia didn’t go this route sooner,” says Paul Kedrosky, a senior fellow at the Kauffman Foundation.

Limited partners don’t necessarily frown on public market funds from VCs, Kedrosky says. A big crossover fund allows LPs to make bigger allocations, something that can grease the wheels for an investment that otherwise would be too small to merit consideration.

“You’ve got a credible reason to make an investment in the fund and not fight your pension board or alumni office to do it,” Kedrosky says.

It is less clear what role newly hired Eric Upin, the former chief investment officer for Stanford University’s endowment, will play at the firm. Sequoia has yet to list the asset manager on its website. Upin will manage allocations to Sequoia’s non-core technology funds, according to a venture capitalist that syndicates deals with Sequoia.

Sean Caplice, a partner with law firm Gunderson Dettmer who helps firms structure their funds but does not count Sequoia among his clients, says that a venture firm might easily move from a group of specialized funds into an over-arching asset management structure.

He declined to speculate on what might be happening at Sequoia, citing a lack of specifics.

Jonathan Axelrad, a partner at law firm Goodwin Procter, which counts Sequoia among its clients, also declined to comment on how Sequoia might structure itself, citing attorney-client confidentiality agreements.

Upin joined Stanford Management Co. in February 2005 to oversee public equity investments. One year later, he was named CIO when Mike McCaffrey left to start his own firm. Prior to Stanford, Upin was a senior partner and managing director of equity research at Robertson Stephens between 1993 and 2002, after which he spent two years as director of tech research with Wells Fargo.

Sequoia may have good reason to rethink the way it operates. Its global expansion has met with some reticence from its limited partners. At least one institution, the Yale Endowment, complained that the firm was hitting it up to expand into areas where it had no historic success. Sequoia responded by removing the endowment from its core fund, according to a report by The Wall Street Journal.

“Some LPs are adamantly against this,” Kedrosky says. “The ones that are going into the foreign funds are looking at it as training wheels for some day getting into Sequoia’s main fund. There’s at least one person I know who was told that. In the absence of a foreign fund that’s paid back its initial capital it makes people nervous.”