Super-rich exiting hedge funds and turning to private equity, report finds
New research has found that managers overseeing the investments of the world's super wealthy have been turning away from hedge funds and instead focusing on private equity and private debt investments.
According to UBS and Campden Research survey, which questioned 242 family offices – which manage money for super-rich family groups – located across the world, there was a 0.9 percentage-point fall in the amount of capital being allocated to hedge funds. In contrast, there was a 2.3 percentage-point rise in the amount of capital being injected into private equity, the poll found.
Dominic Samuelson, CEO of Campden Wealth, told CNBC that the reason for the shift in allocation focus was that "Ultimately families are patient investors."
"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. 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 went on to say.
While hedge funds are far more likely to trade in securities, private equity is more likely to align with managing and growing individual businesses, hence why many super-rich families could be interested in this line of investment.
Thus far in 2016, global family offices have invested, on average, around 14 per cent of their portfolios in private equity and private investments, the poll found. Meanwhile, those family offices located in Asia Pacific have invested around 23 per cent of portfolios in those assets, according to the research, showing that those in Asia Pacific remain more focused on the private equity asset class than their global counterparts. They were also more interested in co-investment ideas, according to the managing director of Southeast Asia UBS and country team head for Singapore ultra-high net worth and global family offices in the region, Patricia Quek.
This form of investment is where a minority investor would link up with a major investor, often via a private-equity fund, in order to inject capital into a business or new venture, rather than simply investing through the larger investor. Other interests included property around the world and succession planning, which could explain the growing interest in private equity investing added Ms Quek.
"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," she added.
Impact investments – those designed to be profitable at the same time as having a positive social or environmental impact – were also growing in popularity among family groups, especially those located in Asia Pacific, it was revealed. According to the survey, 61 per cent of family offices across the globe and 67 per cent based in Asia Pacific were either already involved in impact investing or planned to be in the near future.
Campden Wealth's Mr Samuelson, said: "We do believe strongly that this is being driven by millennials, in essence those families with children that have been born since 1980. Not only are they keen on seeing and deriving strong financial returns and performance, they're also very concerned about the social impact and the social consequences that has in the world today."