North America is home to the largest number of family offices and foundations in the world and many are highly established investors in hedge funds, having entered the asset class over 15 years ago. Today just under half of all family offices and foundations invest in hedge funds, investing on average 14% of total AUM in the hedge fund asset class. As long-term investors in the asset class, family offices and foundations are an attractive source of capital for a hedge fund manager, offering hedge funds both stability and long-term assets.
North American family offices and foundations access the hedge fund asset class using a mixture of both fund of funds and direct fund investments. 54% of family offices and foundations make strategic investments in funds of hedge funds; the relative size of some of these investors means that they are either too small or lacking in the resources to make direct investments, so funds of hedge funds offer them a way of gaining a portfolio of hedge funds through a single investment.
However, many family offices and foundations also make direct hedge fund investments alongside their fund of funds investments, or solely make direct investments. They tend to consider a broad array of hedge fund strategies when making new investments; by not limiting themselves to a prescribed strategic allocation they are able to be more flexible in their investment decisions and respond more quickly to a changing economic landscape. They are also governed with fewer restrictions in comparison to other institutional investors and they are not constrained by a drawn out decision making process before deciding whether to invest in a fund or not.
For more information on institutional investors in hedge funds, please see Preqin’s Hedge Investor Profiles.