Add family offices to the list
of investors backing away from hedge funds.
Much like endowments and foundations,
family offices are scaling back their hedge fund allocations, with 34% planning
decrease their commitments, according to a survey by Campden Wealth Research
The survey, which included 242
family offices with an average of $759 million in assets, revealed concerns
about poor performance and high fees similar to those shared by endowments
and foundations in an NEPC poll last month.
“This year’s report shows a
re-appraisal of hedge funds amongst the family office community,” said Stuart
Rutherford, director of research at Campden Wealth. “There are also some doubts
about the ability of hedge funds to generate alpha going forward, even with the
benefit of volatility.”
But while endowments returned
2.4% in 2015, family offices earned just 0.3%—down from annual returns of 6.1%
and 8.5% in 2014 and 2013.
“The endowment funds of top
universities tend to be prepared to take greater risks than the average family
office, and often have much lower allocations to cash and fixed income,” said
Rutherford. “There is also more stability in their investment approach and
management because they don’ t have to navigate changes to family control and
Perhaps due to these lower
returns, the survey found that family offices are shifting their investments to
riskier growth assets. Globally, investors pursuing growth strategies grew from
29% to 36% this year, with nearly two-thirds of US-based investors adopting
“In the search for yield,
family offices are playing to their strengths by allocating longer term and
accepting more illiquidity,” said Philip Higson, vice chairman of UBS’ global
family office group. “This approach is successful when experienced in-house
teams have sufficient bandwdith for conducting due diligence and managing
existing private market investments.”
Private equity in particular
has become a favorite of family office investors, who grew their allocations from 19.8% to 22.1% this year. Hedge fund commitments, by comparison, dropped from 9% of the average
portfolio to 8.1% in the last 12 months.
“Most family offices can trace
their roots back to the growth and success of a single business,” Higson said.
“Strong performance from private equity over the last five years has only
served to strengthen this natural affiliation.”
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