Infovest21 survey finds family offices allocate 26% of their portfolio to hedge funds

Infovest21’s just-released family office survey provides a snapshot look at the typical family office organization in today’s environment. About 60% were single family offices while 40% were multiple family offices. The family offices were primarily US-based. The average asset size of the typical family office was $2.2 billion. The interviews took place during July.

Among the highlights are:

Hedge Fund/Fund of Funds Allocations

• On average, the family offices allocated to 23 hedge fund managers.
• On average, family offices allocated about 26% of their portfolio to hedge funds.
• The average allocation to funds of funds was quite small at 1.0%.

Views on Hedge Funds

Lois Peltz, president of Infovest21, commented: “Almost two-thirds of the family offices viewed hedge funds “very favorably” while 20% viewed hedge funds “somewhat favorably” while 8% were neutral and 4% viewed hedge funds negatively.”

She added: “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. 23% said excellent talent was available while 15% said talent wasn’t available.”

Manager Selection and Strategies Allocated To
The three most important selection criteria cited in manager selection were performance, experience and reputation.

About 46% of the families allocate to equity long/short, distressed, and event driven. About 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.

Fees

The average 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.

Almost half of the family offices say they have not been able to negotiate favorable terms with managers.

Family offices’ largest concern with hedge funds is managers making up their own rules.

Single versus Multiple family office responses

A number of significant differences can be found when comparing single family offices responses with those of multiple family offices. Some highlights include:
• Single family offices have more experience with hedge funds as seen in terms of years investing with hedge funds.
• Multiple family offices are larger proponents of hedge funds than single family offices.
• For single family offices, performance is the most important criteria in selecting a manager. However, for multiple family offices, experience is the key component
• Very little overlap exists in the strategies that the single and multiple family offices are considering for the first time. Global macro was cited by 20% of the single family offices while the largest percentage of multiple family offices, 38%, cited emerging markets.