Family Office Hedge Fund

November 27th, 2007 |

Many multifamily offices use hedge funds because their clients consist of high net worth or ultra high net worth individuals. The use of family offices by high net worth individuals is increasing each year. The reason for this is that they provide services customized to people with typically 3-50x the assets per client than those of other wealth management firms. There are over 800 family offices in the US and over 3,000 family offices globally. With such a high number of offices the types of hedge funds that family offices use varies from place to place. Some best practices on the types of funds family offices typically worth with though include using hedge fund managers that have:

  • 3+ years of a track record
  • Deeply experienced portfolio management team of at least 4 professionals
  • A competitively defendable and repeatable investment process
  • Transparent operations
  • Long-term relationships with the family office
  • Top quartile or decile performance
  • Returns that are not highly correlated with stock market movements
  • Assets of over $30M with preference of at least $100M-$300M

When dealing with hedge funds and hedge fund of funds multifamily offices usually avoid hedge funds that have:

  • Track records of less than 2 years
  • Small management teams
  • Give off the impression of being a fly by night operation
  • Capitalization Problems
  • Poor marketing materials that are unprofessional
  • Hard selling overbearing sales people that don’t understand how family offices are ran.

The way that fund of funds and hedge funds are used at family offices is always changing but similar to large institutions on Wall Street I believe the long-term trend is towards heavier reliance on alternative investments such as hedge funds.

Richard Wilson runs a hedge fund blog with over 250 white papers, articles, interviews, book reviews and videos on hedge funds. Subscribe and visit now at http://richard-wilson.blogspot.com

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