The Strategist

Rich families no longer trust hedge funds

09/13/2017 - 14:46

According to a report of UBS and Campden Research, family offices that manage property and investments of wealthy families are gradually stepping aside the practice of investing in hedge funds, expressing concerns about ability of funds to make big profits.

Paul Robertson via flickr
Paul Robertson via flickr
An exception may be investments in so-called "quantum" funds that use advanced calculation methods and computer technology to earn money through trading.

This year, long-term survey participants distributed about 7.1% of their investments in hedge funds, compared to 8% in 2016. In the coming years, about 30% of family offices expect to further reduce their investments in hedge funds.

"Just like some of our colleagues, we are leaving the hedge fund space. The incomes have fallen sharply, and, I think, dissatisfaction about the payment of 2% or 3% of profit is growing," said Head of a European family office, who preferred to keep the incognito.

Traditionally, hedge funds charge management fees of 2%, as well as commission for execution at a rate of 20%. Now, this structure is under pressure, as incomes are falling. AOI represents investors, such as funds, pension funds and family offices, and claims that the hedge fund compensation scheme needs to be changed.

Family offices usually manage key family assets and investments. According to Campden, there are about 5,300 family offices around the world, with a staff of 1-2 employees to 100 or more people.

Quantum funds have increased rates, as family offices expanded the commitment of this strategy to 6.4% of their hedge fund assets. This includes all types of investors, not just family offices. All of them increased assets under management to $ 932 billion as of March after 8 years of direct inflows since 2009, according to HFR.

However, there are indications that even those incomes are falling. Neal Berger, Founder and Chief Investment Officer of Eagle's View Asset Management, told Bloomberg News that the yield is falling, suggesting that the rest of the market has developed some of the winning strategies. Stock programs of $ 500 million have about half of their allocations in quantum funds.

As more and more financial managers are entering the quantum trading sector, strategies are being repeated more and more, said a senior strategist at UBS hedge funds. He also suggests that there is little chance of repeating the so-called "quantum earthquake" happened 2007, when the strategy was overflowed by investors and the chain reaction of the sale was disrupted.