Early-stage investors in hedge funds should not be too greedy when negotiating with start-ups or it may hit their own investment, warns Man Investments, which this week agreed a short-term deal with an Asian start-up fund, according to Reuters.

Net outflows of $300 billion between October and June, and the closure of the seeding operations of some banks, specialist funds and large hedge funds, have tipped the balance in favour of investors willing to back small funds, the report said.

Some seed investors now say conditions are fantastic for their strategy, allowing them good access to the best funds, often on favourable terms or by committing less capital.

But using that clout can backfire if investors take so great a share of revenue that it hits a manager's profits or ability to grow, Hans Hurschler, head of Hedge Fund Ventures at Man Investments, told Reuters in an interview.

Tying a manager into an onerous deal of 15 or 20 years rather than a couple of years, can also be counter-productive, Mr Hurschler said.

His firm's RMF Global Emerging Managers fund has invested $50 million in the Hong Kong-based Minerva Macro fund, run by Stanley Ku.

Man will take a share of revenues from the firm and the deal will last only "a couple of years”, Mr Hurschler was quoted as saying.

Although hedge funds have recovered strongly in 2009, their generally poor performance in 2008 – suffering the worst average losses on record – has put pressure on funds to reduce fees and offer more generous contract terms, including easier liquidity and less severe redemption notice requirements.