Family Offices To Boost Alternative Investment Allocations
Tuesday, June 21, 2011

The vast majority of single family offices plan to allocate more money to alternative investments such as hedge funds this year, according to a new survey.

The report “Raising Capital from Single-Family Offices” by Forbes Insights and Russ Alan Prince, a leading authority on private wealth, shows that nearly 90% of Executive Directors at family office firms are highly likely to place additional money into hedge funds this year. In addition, almost 70% of survey participants plan to increase allocations to the private equity sector in 2011.

The survey revealed that approximately 85% of single-family offices currently invest in hedge funds, with roughly half reporting active private equity sector investments. The most popular hedge fund strategies are long/short equity (53%), distressed (49%), arbitrage (33%), managed futures (25%), and global macro (25%). Private equity investment preferences are likely to include established companies (59%), mezzanine financing (39%) and second-round financing (32%).

The 151 participants in the survey were polled in the first quarter of 2011 and were required to have current allocations to the hedge fund or private equity sectors. The survey shows that mean investable assets of single-family offices stands at roughly USD416m in 2011, up from approximately USD236m reported in 2010.

According to investment advisers Rothstein Kass, the report also references earlier proprietary research demonstrating that single-family offices are increasingly appealing sources of capital to investment managers and investment bankers.

“The unified approach to wealth management continues to resonate with high-net worth individuals and families, many of whom rely on investment allocations to fund a wide range of family concerns, including estate planning, philanthropic activities and lifestyle management. They increasingly found that a single-family office is ideally suited to manage these interrelated functions within a centralized structure,” said Rick Flynn, head of the Rothstein Kass Family Office Group. “Today, single-family offices represent vast pools of wealth – both individually and in aggregate. The objective-driven approach pervasive among the single-family office community only amplifies its allure by providing investment managers with access to capital with long-term investment horizons.”

However, Flynn noted that one of the greatest challenges in understanding the single family office sector is defining its scope.

"Surging interest in the space has compelled a variety of wealth management firms to market themselves as family office providers, contributing to widely disparate notions of what these structures encompass,” he said.

“Our latest report illustrates the range of services typically offered by a typical single-family office entity. Among shared characteristics, the most successful ventures recognized that the Executive Director is critical to cohesive management. Though the title can vary, the Executive Director often serves as a quarterback for the wealth management team. More frequently, this individual is exerting greater influence regarding investment decisions and due diligence processes. As a result, investment managers seeking to raise capital from the single-family office community are best-served by adopting a consultative approach – one that consider investment orientation alongside long-term objectives to gain insight into the ‘professional ecosystem’ at work.”