Managers who invest the money of the world's super-rich have been pulling out of hedge funds and increasing their allocation to private equity and private debt, a new survey found.
The UBS and Campden Research survey of 242 family offices globally found that there was a 0.9 percentage-point decrease in allocation to hedge funds and a 2.3 percentage-point increase in allocations to private equity. Family offices are the investment houses that manage money for ultra-wealthy family groups.
"Ultimately families are patient investors," said Dominic Samuelson, CEO of Campden Wealth, citing two main reasons for the shift.
"Most of them have been extremely successful in creating and establishing businesses and organizations, so it is quite natural for them to want to be engaged," he said. Private equity typically becomes deeply involved in managing and growing individual businesses, while hedge funds are more likely to trade in securities.
"Secondly, you have to be very pragmatic about where the hedge fund industry is today. It doesn't mean that hedge funds are over, but families are challenged by the fee structures of hedge funds. They are not entirely convinced that there is alpha there at the moment," he said.
For the January-to-October period, hedge funds were up 2.85 percent, although they were down 0.48 percent in October, according to data from Eurekahedge released on Wednesday, citing their in-house Eurekahedge Hedge Fund Index, which includes around 2,800 funds with multiple regional mandates. That was compared with the average fund's rise of 1.65 percent for 2015, the data showed.
So far in 2016, global family offices have returned 3.1 percent year-to-date, with around 14 percent of portfolios on average invested in private equity and private investments, while Asia Pacific family offices have seen year-to-date returns of 3.9 percent, with around 23 percent of portfolios in those assets, the survey found.
The survey attributed the better performance of Asia Pacific family offices compared with their global peers to a greater focus on private equity.
Family offices in Asia were particularly interested in co-investment ideas, noted Patricia Quek, UBS' managing director and country team head for Singapore ultra-high net worth and global family offices in Southeast Asia.