A super rich abandoning hedge funds, according to an UBS report

According to the Swiss bank UBS, the world's super-rich are turning more and more to hedge funds, with the amounts invested by family offices declining for the third year in a row.

According to the UBS annual survey on family offices, hedge funds now account for only 5.7% of all investments in the sector.

The family offices, in their simplest form, are the private office of a wealthy family. This can be done through an individual business created to manage the finances of a single family or part of a bigger business. HSBC's private practice, for example, manages over $ 130 billion in assets for 340 families, according to Bloomberg.

"Given the fears of poor performance and relatively high fees, hedge fund allocations have declined for at least the fourth year in a row," says the Global Family Office report.

In a worrying way for hedge funds, the decline in family allowances continues, with a decline of more than 3% in the last 12 months.

"While last year's allocations fell by 0.9 percentage points, they accelerated this year, decreasing by 3.2 points to bring the average allocation of the hedge portfolio to just 5.7%", note the report.

The most fundamental factor behind the abandonment of hedge funds by family offices is simply that they have not made much money for their clients, pushing investors to look elsewhere.

"Less than desirable returns in recent years, amplified by market volatility, have not worked in favor of hedge funds," notes UBS.

"After being outperformed by private equity and equity investments, investors continue to avoid significant diversification through hedge funds."

UBS quotes the unnamed CEO of a family office in North America, who provides the following reasoning for the drop in family office allocations to hedge funds: "If you look at hedge funds, you can see much more returns. weak than the rest of the market. The goal of a hedge fund is to limit your downside risk, but you're not going up either. "

While hedge fund allocations have fallen, there is hope on the horizon, with UBS stating that family office hedge fund allocations should remain somewhat consistent over the next 12 years month.

"While 15% of respondents said they would reduce their investment in hedge funds, a slightly higher proportion, 21%, said they would increase them," the report said.

Beyond hedge funds, family offices have focused on developed market equities, private equity funds and developed market bonds over the last year, according to the report. Investments in cash and agricultural commodities were the only other categories to experience lower allocations, UBS said.