Family Offices and Hedge Funds

I read a recent post at Simon Kerr's Hedge Fund Blog about family offices.  They are not included in the institutional investor universe but have several advantages investing in hedge funds.  The firm Rothstein Kass polled 151 family offices.  85% are in hedge funds and 90% of them are planning to increase their investments.  On the other hand, only 50% are invested in private equity.

There are two types of offices:  Wealth Creators (71%) and Wealth Preservers (29%).  Creators are more likely  to add to their hedge fund investments.  Many of them lost capital during the credit crisis and are trying gain it back.  The most popular strategies were equity long/short, distressed and arbitrage.

Simon summarizes the advantages as follows:

• Family offices tend to have long-term investment horizons. 
• They tend to want to live with decisions for some time – as a source of "sticky money" they won't flip a multi-year investment proposition after a couple of bad quarters.
• The investment decision making is often quicker than either funds of hedge funds or institutional investors that use consultants to select hedge funds.
• Due diligence of family offices is less invasive and time consuming than for investing institutions.
• They typically require less client servicing resource than other investors in hedge funds.
• They tend to have less restricted selection criteria than institution al investors – family offices can invest in niche strategies, emerging managers and small funds.

The source material for Simon's article can be accessed here.