Shelton, Conn. (March 11, 2004) -- Family offices expect to make a tremendous push into hedge fund management over the next three years, according to research by consultancy Prince & Associates.
While many family offices will seek outside hedge funds for their efforts, they'll also provide affluent families with a strong alternative to traditional providers of hedge funds, according to Prince & Associates. The percent of single- and multi-family offices managing hedge funds of funds is projected to double, to 66 percent and 80 percent, respectively. The findings are based on interviews with 92 single-family offices, 234 multi-family offices, and 327 firms that bill themselves as providers of family office services.
Families also plan, to a lesser extent, to manage single-manager hedge funds. About a third of single-family offices manage hedge funds now, but 41 percent expect to manage them in three years. The figures are similar for multi-family offices, with 31 percent responding that they presently manage single-manager hedge funds and 42 percent reporting that they expect to manage them in three years.
The majority of single- and multi-family offices have experience hiring hedge fund managers. About 80 percent have invested with an outside single-manager hedge fund in the last two years. Single-family and multi-family offices -- those that provide services to outside families but are anchored by a core family whose assets represent a minimum of 30 percent -- rely heavily on networking when picking hedge fund managers, noted Russ Prince, president of Prince & Associates. He added that lawyers who serve as outside counsel to the families hold the key to family office assets, and while family offices do look at databases and talk to capital introductions groups and third-party marketers, they want some type of connection to the manager.
Prince also noted that family offices are pickier than other investors when it comes to choosing hedge fund managers. They put more resources into finding out about the people managing the funds -- personal evaluations and background checks -- yet also require the same level of due diligence when it comes to such things ass performance track records, maintenance of style and staff experience.
Only 13 percent of single-family and 19 percent of multi-family offices have employed fund of funds managers in the last two years, and most of those surveyed didn't feel comfortable projecting future usage. Those that launch their own funds of funds may continue to invest with outside fund of funds managers. In the single hedge fund market, 33 percent of single-family offices manage their own hedge funds, yet 78 percent still hire outside managers. Thirty-one percent of multi-family offices manage hedge funds and 82 percent use outside managers, according to the report.
-- WebCPA staff
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