Hedge funds to chase the wealthy.
Insightful article on two important hedge fund investor constituencies.
I will attempt to summarize:
1. HNW and family offices were some of the first investors in hedge funds
2. HFs started to target larger pockets of money from FOFs, endowments, foundations and ultimately pension funds at the expense of their HNW/Family office investors
3. FOFs, Pension Funds and Endowments now have major issues, are completely frozen and not allocating
4.. HFs rediscover HNW and family offices
5. HNW and family offices (not so) kindly demure
As a rule, I generally avoid thinking of the hedge fund industry as homogenous, however, in this case, I believe that the actions of the last 6 months – specifically suspension of redemptions – has hurt the reputation of all managers.
There is hard work ahead to regain the trust of the HNW/family office investor.
From Stephanie’s article in Wealth Bulletin:
(73%) of hedge fund managers responding to a survey by US accountancy firm Rothstein Kass said affluent clients would be their top source of new capital, followed by single family offices (49%). The survey, conducted in January, included senior partners at 239 US hedge funds with at least $100m (€79m) under management, operating five years or more.
But last month Tiger 21, a New York investment club that includes 160 wealthy investors with $70m or more in assets, told Financial News that its members had reduced their allocations to hedge funds from 11% of their portfolios to 3%, following double-digit losses and the imposition of gates barring investors from removing their capital. Michael Sonnenfeldt, the founder of Tiger 21, said: “Our members feel that they have been played for a fool by hedge fund managers. The depth of feeling towards hedge fund managers is palpable.”
Rothstein Kass’ report said hedge funds – which suffered outflows of nearly $160bn last year, the worst in 14 years, according to data provider Lipper TASS – are reverting to traditional investors. This contrasts its findings two years ago, when a fifth of hedge fund managers said institutional investors would be the dominant sources of new capital.