The press release below discusses a report on investments in hedge funds by single family offices. The report finds that single family offices are willing to invest in hedge funds and also lays out some of the major concerns about hedge fund investing. The central issue for single family offices is transparency in the underlying hedge fund. This indicates that hedge funds are likely to see a rise in the request for due diligence on the fund and management company.
SINGLE FAMILY OFFICES BOLSTER ALTERNATIVE INVESTMENT SECTOR
New Survey from CPA Firm Rothstein Kass Finds Nearly 75% of Single Family Offices Invest in Hedge Funds
Almost 60% Plan to Increase Allocations to Alternative Investments in the Next 12 Months
Roseland, NJ – October 14, 2008 – The alternative investment sector will continue to benefit from increasing asset allocations from Single Family Offices (SFOs), according to “On the Rise,” the latest research report sponsored by CPA firm Rothstein Kass. The white paper, co-sponsored by G Capital highlights the growing relationship between the alternative investment community and SFOs, entities established to serve the needs of individual high-net-worth families. “On the Rise” was co-authored by Russ Alan Prince, a leading authority and counselor on private wealth, and Hannah Shaw Grove, a widely recognized expert on behaviors and finances of high-net-worth individuals. Among notable findings:
- Almost three-quarters of SFOs currently invest in hedge funds, with nearly 60% of this group planning additional allocations in the coming year
- SFOs with hedge fund allocations hold an average of 3.2 hedge funds or fund-of funds in the portfolio
- Nearly 70% of SFOs with hedge fund allocations report that these investments have met or exceeded performance expectations over the past 12 months
- Over 80% of respondents reported 24 month performance was ‘as expected’ or better
- More than 70% of SFOs with hedge fund allocations report “lack of transparency” as a key concern. Other concerns sited include lock-up periods (60%), style drift (55%) and fraud (37%)
“Single Family Offices are trusted and highly valued by high-net-worth families they serve because of the individualized attention and customized solutions they provide to holistic wealth management. However, our research suggests that persistent market volatility has placed added importance on the asset allocation function. As SFOs consider an ever-expanding range of investment options, they are increasingly turning to the alternative investment sector and its proven ability to deliver superior returns independent of underlying market conditions,” said Rick Flynn, a Principal in Rothstein Kass’ Family Office Group. “Moreover, our findings suggest that performance continues to drive alternative investment allocations. Nearly 70% of those polled said that performance over the last 12 months has been ‘as expected’ or ‘better than expected.’”
The “On the Rise” survey was based on telephone interviews with 146 SFOs and was concluded in August 2008. Investable assets ranged from $312.2 million to $1.3 billion, with a median of roughly $500 million. Just under 60% of the firms polled are based in the Americas, with the balance operating in Europe (21%) and Asia (20%). Additional results were generated from only those entities with reported allocations to the alternative investment sector. For the purposes of this research, SFOs are defined as “created exclusively for or by a single exceptionally wealthy family to provide control, negotiating leverage, and a defense for family members.”
“’On the Rise’ details the latest evidence of the growing interrelation between SFOs and the alternative investment community. While high-net-worth individuals generally recognize advantages of hedge fund investing, they are frequently confounded by the growing roster of products and services available. SFOs have had great success in bridging this knowledge gap,” said Peter Gerhard, Chief Executive Officer of G Capital Management LLC. “Still, lingering challenges face this blossoming relationship. Both transparency (73%) and style drift (55%) rated as key concerns among respondents. It seems that although high-net-worth families are comfortable involving SFOs in the asset allocation process, they themselves retain a level of involvement. Investors need to feel confident that the funds that have been selected are not only good choices in the moment, but reflect overarching and longer-term investment objectives.”
About Rothstein Kass:
Rothstein Kass is a premier financial services firm, recognized nationally as a top service provider to the alternative investment industry. The Firm provides audit, tax, accounting and consulting services to hedge funds, fund of funds, private equity funds, brokerdealers and registered investment advisors. Rothstein Kass is recognized nationally as a top service provider to the industry through its Financial Services Group. The Financial Services Group consults on a wide range of organization, operational and regulatory issues. The Firm also advises on fund structure, both inside and outside the US, compliance and financial reporting, as well as tax issues from a federal, state, local and international compliance perspective. Rothstein Kass has offices in New York, New Jersey, California, Colorado, Texas and the Cayman Islands. www.rkco.com
The Rothstein Kass Family Office Group offers a wide range of financial, wealth planning and lifestyle management services to family offices and high-net-worth individuals, including family members, business owners and members of the financial services, entertainment and sports industries. Composed of seasoned financial professionals and certified public accountants, the Rothstein Kass Family Office Group applies proven expertise with the utmost discretion and attention.
About G Capital Management LLC
By leveraging state-of-the-art capital markets expertise and select advanced planning concepts, G Capital has raised the bar for the next generation of family offices. In addition to the highly effective and sophisticated solutions its family members require, the organization’s structure and capabilities create an efficient, scalable and profitable operating environment that can be readily adapted to capture new businesses opportunities.
About the Authors:
Russ Alan Prince is the world’s leading authority on private wealth, the author of 40 books on the topic, and a highly-sought counselor to families with significant global resources, and their advisors. He is co-author of Fortune’s Fortress: A Primer on Wealth Preservation for Hedge Fund Professionals.
Hannah Shaw Grove is a widely recognized author, columnist, speaker and an expert on the mindset, behaviors, concerns, preferences and finances of high-net-worth individuals. She is co-author of Inside the Family Office: Managing the Fortunes of the Exceptionally Wealthy.