Typical family office invests more than a quarter of its clients' assets with hedge funds; share could be even larger
Apparently, hedge funds are a hit with 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 today. 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 the use of hedge fund in his members' portfolios may be even greater. He estimates 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 they use a variety of hedge funds to achieve different objectives. For instance, they use a global macro hedge fund because it will be non-correlated to equities.
Advisers will use multi-strategy hedge funds “as more market neutral funds that achieve equity-like returns without the volatility associated with the equity markets.”
Certainly, advisers at a family office seem pleased with the performance generated by hedgies. About two-thirds of family offices viewed hedge funds “very favorably” and another 20% viewed them “somewhat favorably,” the survey found. Of note, the survey's respondents used 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 few investment opportunities existed, while about a third said many investment opportunities existed, Ms. Peltz 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 paid an average 1.6% management fee and 18.9% incentive fee for hedge funds, compared to fees paid for hedge funds of funds, which carried a management fee of 1% and incentive fee of 7.8%, the survey said.
Nearly six out of ten of the surveyed family offices said hedge fund fees have stayed the same over the past 12 months, and about half said that they haven't been able to negotiate favorable terms with managers.
