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Infovest21 Survey: Family offices/foundations allocate average 21% of portfolio to hedge funds

Thursday, September 13, 2012
Opalesque Industry Update - Infovest21's just released family office/foundation survey explores single family office, multiple family office and foundations' views of hedge funds and funds of funds. The respondents were primarily US-based with an average asset size was $1.6 billion. The interviews took place during July and August.

Among the highlights are:

• On average, the respondents allocated to 19 hedge fund managers.
• On average, the respondents allocated about 21% of their portfolio to hedge funds. Hedge funds received the second largest asset allocation behind equities.
• The average allocation to funds of funds was quite small at 2.9%.
• 26% of the respondents have been investing in hedge funds/funds of funds for over 20 years.

Manager Selection and Strategies Allocated To

The three most important selection criteria cited in manager selection were integrity, performance and edge in investment process.

About 56% of the families allocate to equity long/short while 37% allocated to distressed, and 33% to event driven and 33% to fixed income arbitrage.

Global macro was most frequently cited as the strategy being considered that had not yet been allocated to.

Over one-third of the respondents use '40 Act mutual funds with another 7% are considering them. The biggest criticism of '40 Act mutual funds was that managers were not as high quality as hedge fund managers.

Fees

The average fee structure paid to a hedge fund was 1.5% management fee and 14.6% incentive fee. The average management fee and incentive fee for funds of funds was 0.7% and 4.3% respectively.

Concerns

Family offices' largest concerns with hedge funds are managers' high fees and managers' interests not aligned with theirs. High fees were also the largest concern regarding funds of funds.

Single family offices versus multiple family offices versus foundations responses

A number of significant differences were found among single family offices, multiple family offices and the foundations. For example, single family offices have been long-time investors of hedge funds. Over 40% have been investing with hedge funds for over 20 years. Of those, 17% have been investing for over 30 years.

Single family offices have a more negative view on hedge funds than the other survey respondent groups; 17% do not like hedge funds at all while another 8% were somewhat negative.

2012 vs 2011 vs 2010

In 2012, family offices are less enthusiastic about hedge funds than they had been. In 2012, 22% felt very favorable to them compared with 64% in 2011 and 33% in 2010. Today, 7% of the family offices said they do not like hedge funds at all compared with zero in 2011 and 3.3% in 2011.

The average family office hedge fund allocation was 21% in 2012, down from 26% in 2011 and 32% in 2010.

The average fund of funds allocation increased to 2.9% in 2012 from 1.0% in 2011 but considerably lower than 9% in 2010.

The number of hedge fund managers allocated to has also dropped from 25 in 2010 to 23 in 2011 to 19 today.

Full results of the survey are available in Infovest21's "Family Office/Foundation views of Hedge Funds/Funds of Funds."

Press release on infovest21.net

For additional information, contact: Lois Peltz, President, Infovest21, 212 686 6440 general@infovest21.com

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