Europe's Family Offices Looking To Invest In Hedge Funds

Mar 13 2012 | 9:58am ET

Family offices in Europe have cash and are not only willing to put it in hedge funds, they’re willing to place it with smaller managers.

The market advisory firm Somerset Capital surveyed 32 family offices, 82% of which were single-family offices. The investors polled were located predominantly in Europe (particularly the UK) and half managed over US$500 million. The majority (52%) were pure financial investors while 45% own operating businesses.

Among the family offices surveyed, the average allocation to asset classes was 24% equity, 10% bonds, 11% hedge funds, 26% private equity, 14% real assets, 3% commodities and 13% cash.

Over the coming year, over 50% of respondents plan to cut their allocations to cash and increase their allocations to private equity (63%), equities (42%), real assets (41%) and hedge funds (24%).

In terms of hedge funds, Somerset says it has heard “anecdotally” that family office investors “are looking for nimble managers in liquid strategies who are able to perform in tricky markets.”

The study contained good news for smaller funds as 61% of respondents expressed a willingness to invest in funds with less than $100 million in AUM and 33% said they’d consider seed investments. Fully 93% of respondents said that they would invest in funds with less than $1 billion in AUM and, in fact, 23% said they wouldn’t invest in funds with AUM in excess of $1 billion.

Somerset says 64% of respondents invest in hedge funds with an average allocation of 24%. The most popular strategies among family office investors are long/short equity (over 90% allocated to such funds), fundamental equity strategies and macro strategies.

Of least interest were fixed income relative value (42% of respondents had no allocation to such funds) and volatility arbitrage (33% had no allocation).

The majority (53%) of respondents intend to increase allocations to macro funds, 38% said they would increase allocations to CTAs, and 36% said they would add to equity market neutral.

In terms of regions, 40% of respondents plan to increase their allocations to Asia and in terms of structure, 46% of respondents who invest in hedge funds do not invest in Cayman strategies and only 20% invest through managed accounts. The vast majority (67%) invest in onshore EU structures.


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