Survey: Family Offices Allocating 26% Of Portfolios To Hedge Funds

Aug 29 2011 | 12:51pm ET

Family offices allocate 26% of their portfolios to hedge funds, according to the latest survey from Infovest21.

Infovest21 questioned 26 family offices—60% of which were single-family outfits, 40% of which were multi-family—in July. Most were U.S. based and their average AUM was $2.2 billion.

The survey revealed, among other things, that family offices allocate to 23 hedge fund managers, on average, and that their allocations to funds of funds are quite small—averaging 1.0%.
 
Lois Peltz, Infovest21 president, said almost two-thirds of the family offices surveyed viewed hedge funds ‘very favorably’ while 20% viewed them ‘somewhat favorably,’ 8% were neutral and 4% viewed them negatively.
 
Said Peltz: “Family offices were also divided on their views of the current hedge fund environment: Almost 40% of the families said few investment opportunities existed while 31% said many investment opportunities existed.” Peltz says 23% of respondents said “excellent” talent was available while 15% said talent wasn't available.
 
Family offices say the three most important criteria for selecting a manager are performance, experience and reputation.
 
About 46% of the families allocate to equity long/short, distressed, and event driven while 42% allocate to emerging markets.
 
Over 30% of the typical family offices' portfolio is allocated to managers with assets between $500 million and $999 million. Another 25% is allocated to managers with assets between $100 and $499 million while 18% of the managers have assets below $100 million.
 
Infovest21 found that the usual fee structure paid to a hedge fund was 1.6% management fee and 18.9% incentive fee. The average management fee and incentive fee for funds of funds was 1.0% and 7.8%, respectively.
 
Almost 60% of the families said the fees have stayed the same compared with last year while  20% said they are paying a lower management fee and another 20% said they are paying a lower incentive fee. Another 20% said they are paying higher management fees and another 16% are paying higher incentive fees.
 
Despite their reputed clout, almost half of the family offices said they were unable to negotiate favorable terms with managers.
 
Family offices' largest concern with hedge funds is managers making up their own rules.
 
Infovest21’s survey also revealed some significant differences between the responses of single-family and multi-family offices. Single-family offices, for instance, are more experienced with hedge funds, having been investing in them for a longer time. Also, single-family offices consider performance the most important manager-selection criteria while multi-family offices are more swayed by experience.


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