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A Comparison of North America- and Europe-Based Family Offices – June 2014

by Yoosun Chung

  • 12 Jun 2014
  • HF

According to Preqin’s Hedge Fund Investor Profiles, family offices represent a sizable portion of approximately 7.5% of the number of hedge fund investors globally. North America and Europe represent most of these investors, with 55% and 31% of family offices based in these regions respectively. However, there are some significant differences in how these two groups invest in hedge funds.

Family offices in both North America and Europe have a preference for single manager hedge funds over funds of hedge funds, with 95% of North America-based and 87% of Europe-based family offices investing in hedge funds directly, compared to 29% in both regions which invest in funds of hedge funds. However, more family offices based in North America invest through managed accounts; 11% of North American family offices are willing to build customized accounts, compared to just 4% of their European counterparts which look to do the same. This suggests that North American family offices are more comfortable with managed account structures as they seek more control over their assets.

A number of European family offices invest in UCITS-compliant hedge funds, with 13% of these investors allocating to these vehicles. These investors prefer UCITS funds due to the increased transparency and investment disclosure offered. In contrast to offshore funds that typically lock-up capital, UCITS funds also provide at least biweekly liquidity. Its retail nature and smaller minimum investment requirements are likely to be attractive to private families.

There is also a notable difference in the first time fund preferences of family offices in the two regions. North America-based family offices appear to be more willing to invest in first time funds when compared to Europe-based family offices. Based on Preqin data, 41% of North American family offices will invest in emerging managers, compared to 35% of European family offices. Similarly, 41% of North America-based family offices will invest in spin-off teams, while only 27% of Europe-based family offices will invest with these managers. Seeding is a more niche aspect of hedge fund investing but is far more common among North American family offices than their European counterparts, with 28% of North American family offices willing to provide seed capital compared to just 8% in Europe.

Family offices in both of these regions have access to hedge funds; however, their modes of investing are quite different. There may be slightly less confidence in hedge funds in Europe due to the higher fees and families not understanding the benefits of hedge funds in their portfolio. Nevertheless, despite the aforementioned differences, family offices in both of these regions will continue to be active in investing in the hedge fund industry. How these two regions influence each other going forward, if at all, will further shape the dynamics of the asset class and its relation to family offices globally.

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