Shifting money into private equity and out of hedge funds

Posted on

Gerard Cohen
In the last year we have witnessed a marked trend of family offices taking their money out of hedge funds and increasing their stake in private equity.

Only last year, research revealed that there had been a 0.9% cent drop in hedge fund allocation. The survey, conducted by UBS and Campden Research, quizzed a total of 242 family offices around the world, and also found that there had been a 2.3% increase in allocations to private equity.

What can this change in direction be attributed to?

Firstly, there is the reality that hedge funds might be a less attractive proposition than they once were. Family offices feel challenged by hedge funds’ fee structures, and the direct investment offered by private equity offers an enticing chance to cut out the middle man.

Then there is the question of patience, a virtue which is traditionally possessed by family offices. They don’t mind long haul investments, and the chance to be involved with the creation and growth of an organisation offers a level of engagement which hedge funds can’t match, being mostly concerned with securities.

There might also be a link between private equity and the success of investments, the same survey suggests. The period included in the research showed that 14% of family office portfolios had private equity investments and that this group had enjoyed 3.1% returns. That contrasts with the Asia-Pacific group of family offices, of which nearly a quarter (23%) had invested in family office, with their returns of 3.9% comparing favourably.

Patricia Quek, the UBS managing director, is of the view that the opportunities for added engagement appeal to family offices, who sometimes have a responsibility to involve many different stakeholders.

She explained: “In the older days, we’ve got one patriarch. He runs one business. But when families grow to the second and the third generation, we need to create more opportunities. We need to have more direct investments, so that there are more roles for the naturally more grandchildren.”

Another expert, the noted Monaco banker, Gérard Cohen, agreed that the new generations involved in family offices were a key influence in the move towards private equity.

Monaco’s Gérard Cohen said: “I think it is clear that the opportunities private equity creates for investment in organisations which have objectives to engender positive socioeconomic change is a selling point; for millennials in particular. These are the young people who will one day take the reigns of family offices, and private equity offers them a higher level of engagement.”

Photo: © patpitchaya / Adobe Stock

  • Share