Family Office Hedge Fund Strategies

Are Family Offices an Alternative to Hedge Funds?

The 90s was a glorious era for hedge fund managers because it could be set up easily and it required only a telephone and a computer. There was no monitoring by media or public or too many regulations by the Government.

However, the investment trends have changed drastically in recent times. There is a surge in the number of young investment managers. There are multiple regulations introduced by the Government to reduce the number of risk-taking investors in this field. This has led to the hedge fund investors opting for other investment strategies.

The past few months have seen many hedge funds converting to family offices. A family office manages the finances of the hedge fund manager, his or her family members, and those of key members of the fund. The main benefit that a family office offers is that it does not need to be registered with the US Securities and Exchange Commission and are therefore not subject to its regulations and disclosure requirements.

The reason for the switch has been attributed to the fact that hedge funds have yielded poor returns in the recent past. They have yielded returns of approximately 3% in the past year.

Managing hedge funds has also become a challenge due to the following reasons:

  • Investors are discouraged by the high fees of Hedge funds and prefer cheaper and more passive investment strategies.
  • Expenses incurred in hiring the best talent.
  • Fulfilling the needs of diverse investors has become a challenge.
  • Stress for hedge fund managers as they have to run the investor’s funds in a challenging environment.

Besides these reasons, the investment environment has become challenging due to the stock market conditions. Some of these aspects are limited dispersion between equities making it difficult for managers to make long and short bets; global growth impacting macro fund managers; and crowded trades.

One of the main reasons for the under performance of hedge funds has been crowded trades.

What are crowded trades?

There is a rise in the number of talented, hungry, and driven investors who are looking for more alpha than before. These investors are finding limited opportunities and grabbing them.

As a result of a decrease in the hedge fund investments, family offices are experiencing a fillip in investments. The best-known investors George Soros and Steven Cohen are withdrawing investments from hedge funds and opting for family offices. It is expected that more investors will follow suit.

One of the main reasons for the popularity of family offices is that they offer more flexibility to their members. Besides family office is a more stable option.

Although hedge funds may lack the glamour of the 90’s, they can’t be written off. There are investors who are still opting for this investment strategy.

Family offices are becoming increasingly popular and are being preferred over hedge funds. But they are already under the scrutiny of SEC. Soon regulatory bodies of other countries will be directing their attention towards them.

While investing in any strategy, it is recommended that you seek the services of a professional who is conversant with the pros and cons of the strategy. Greg Silberman is a reputed financial consultant based in Georgia, Atlanta. He is aware of various investment strategies and suggests investments based on the financial market. He has experience in managing family offices and is knowledgeable about the trends in investments.