Goldman Sachs Group Inc. is turning to the less risky business of providing capital for those who want to start their own hedge funds, reports the Wall Street Journal.

Goldman has raised roughly $600 million from pension funds, wealthy families and large institutions to invest in 10 new hedge funds. Each hedge fund startup is expected to receive between $75 million to $150 million to get off and running. Investors will earn returns based on the success of the funds themselves plus a slice of the hedge fund managers’ fees.

Typically these seeder funds take a 15% to 25% cut of both the annual 2% management fee and 20% of profits earned by hedge fund managers. The actual percentage promised to Goldman investors was not revealed in the Journal article.

Goldman, of course, can gain from a slice of these fees plus the business generated by the hedge funds and sent through Goldman’s trading unit.

The new fund has already invested roughly $100 million in a New York-based hedge fund called Palestra Capital Management LLC. Palestra is a long-short equity fund launched by Jeremy Schiffman and Andrew Immerman, who previously worked for large hedge funds TPG-Axon and SAC Capital.

This “seeding” approach marks a turnaround in strategy for Goldman. Prior to the financial crisis, Goldman and a number of other big banks such as Morgan Stanley and J.P. Morgan Chase & Co. bought hedge funds directly or even set up their own in-house funds. But the financial meltdown hammered returns and resulted in large losses for many of these fledgling funds.

Goldman’s Global Alpha Fund L.P., for example, which was a computer-driven trading fund that had grown as large as $12 billion in assets, closed this past October after investors pulled out money and the fund suffered losses.

The business of seeding hedge funds has heated up this year, however. There are more money managers who have left large banks or other hedge funds looking to start their own funds, and looking to raise capital. An association with a brand-name institution such as Goldman Sachs or Blackstone provides a certain cache and helps with fundraising, particularly from brokers who advise pensions and large institutions on how to allocate their money.

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