Apparently, hedge funds are a hit with financial advisers who run family offices.
The typical family office invests more than a quarter of its clients' assets with hedge funds, according to an Infovest21 LLC survey of family offices released last week. By comparison, advisers allocate about 1% of their clients' assets to funds of hedge funds.
Angelo Robles, founder of the Family Office Association, which represents single-family offices, said that the use of hedge funds in his members' portfolios may be even greater. He estimated that portfolios may be invested 35% to 40% in hedge funds.
“Single-family offices are sophisticated investors, and they look for talented managers,” Mr. Robles said. “Increasingly, they're seeking opportunities that happen early on in a hedge fund manager's cycle that may give them more-favorable terms.”
Steve Aucamp, executive director of multifamily office firm Convergent Wealth Advisors LLC, said the firm uses a variety of hedge funds to achieve different objectives. For instance, it uses a global macro hedge fund because it will be non-correlated to equities.
Advisers will use multistrategy hedge funds “as more market-neutral funds achieve equitylike returns without the volatility associated with the equity markets,” Mr. Aucamp said.
Certainly, advisers at family offices seem pleased with the performance generated by hedge funds. About two-thirds of family offices view hedge funds “very favorably,” and another 20% view them “somewhat favorably,” the survey found.
Of note, the survey's respondents use an average of 23 hedge fund managers.
Nevertheless, advisers at family offices were divided on their views of the current hedge fund environment, said Lois Peltz, president of research firm Infovest21, which conducted the survey in July.
Nearly 40% of the respondents said that few investment opportunities exist, while about a third said that many investment opportunities exist, she said.
The survey found that family offices choose the fund managers they invest with based on performance, experience and reputation — no great surprise. About 46% of the offices invest in equity long/short, distressed and event-driven hedge funds, while about 42% go with emerging-markets hedge funds.
Advisers pay an average 1.6% management fee and 18.9% incentive fee for hedge funds, compared with fees paid for hedge funds of funds, which carry a management fee of 1% and incentive fee of 7.8%, the survey found.
Nearly 60% of the surveyed family offices said that hedge fund fees have stayed the same over the past 12 months, and about half said that they haven't been able to negotiate more-favorable terms with managers.
Email Liz Skinner at [email protected]
