Hedge funds of growing importance to family offices
The average family office portfolio allocates approximately 9 per cent to hedge funds, up from allocations of 7 per cent in 2014, according to The Global Family Office Report 2015, produced by Campden Wealth Research, in partnership with UBS.
The average family office, with assets under management of USD806 million, invested approximately USD73 million in hedge funds in 2014, primarily in long/short equity and global macro strategies. Hedge funds are particularly popular with North American and Emerging Market family office portfolios.
The Global Family Office Report 2015 surveyed principals and executives in over 224 family offices (based in 37 different countries), with an average size of USD806 million assets under management. Collectively, the participating family offices represented well over USD200 billion in private wealth.
Stuart Rutherford (pictured), Director of Research at Campden Wealth highlighted the increased prominence of hedge funds to family offices, says: “A two per cent rise in allocations towards hedge funds demonstrates a clear change in the risk appetites of family offices. Buoyed by total portfolio returns of 8.5 per cent in 2013, offices have dropped their cash allocations by two per cent and moved into hedge funds.”
Philip Higson, Vice Chairman, Global Family Office Group, UBS AG, says: “Hedge fund strategies employed by family offices are diversified, as seen across their whole portfolio. That being said, picking the right manager, with the right skills and risk-appetite for you is imperative. Family offices are looking at hedge funds as an alternative to their fixed income exposure right now.”
Despite being the fastest growing asset category this year, hedge funds are still regarded with scepticism amongst some of the family office community. A Chief Executive Officer from a Middle Eastern Single Family Office who participated in the research, says: “I don’t like hedge funds because of their risk profile and the way they operate in terms of a black-box mentality. I like transparency.”
The data also reveals the return expectations that family offices have from investing with different strategies. For instance annual return expectations are significantly higher for those hedge funds specialising in distressed assets. Typically outsourced as an asset class due to the specialist requirements and knowledge of hedge fund managers, return expectations for this asset class averaged around 8 per cent for 2014.