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ALTERNATIVE INVESTMENTS


“Hedge funds are a


major, fast-growing and barely understood sector within alternatives”


were accessing non-correlated strategies, diversification, and seeking absolute returns. It noted that the key challenges were for the underlying hedge fund to meet performance expectations, and for transparency, where investors need assurance that the managers’ investments at all times corresponds to pre- agreed investment strategies and risk limits. The SEI survey also noted that nearly nine out


of ten respondents expressed a positive outlook for the hedge funds industry, while 54 per cent of investors said they plan to increase target allocations to hedge funds in the next 12 months.


$1.4 trillion


THE GLOBAL HEDGE FUNDS INDUSTRY’S ASSETS UNDER MANAGEMENT IN EARLY 2009


Why the attraction? So why the large inflows (US$800 billion) into hedge funds in the past two years? For family offices and other investors, the key attraction is that hedge funds offer the objectives of ƒ providing alpha (beating the general market) ƒ being paid a success (performance) fee ƒ aligning interests where the hedge fund manager or executive team have significant personal assets in the fund alongside the investor ƒ offering non-correlated returns, which in turn provides better risk-adjusted returns for the investors’ overall portfolio ƒ offering a range of specialist investment strategies where the hedge fund manager has an investment edge – the distinguishing feature of which is that they deploy short-selling techniques while traditional fund managers are “long-only” investors. A 2010 survey by SEI Investments of 97 institutional


investors and 14 consulting firms found that the top three reasons for investing in hedge funds


Family office investments in hedge funds Paradoxically, the family offices and university endowments in the US and Europe were the traditional investors in hedge funds in the 1980s and 1990s. Institutional investors only climbed aboard when hedge fund managers became larger and more institutional. Nevertheless, a July 2011 survey by Infovest


21 of mostly US family offices found that on average, these family offices allocated around 26 per cent of their portfolio to hedge funds. Almost two thirds of the family offices viewed hedge funds very favorably while 20 per cent viewed them somewhat favorably and just four per cent negatively. The average asset size of the typical family office in the survey was US$2.2 billion. On average, they invested in 23 hedge fund managers. With family offices in Asia growing fast, such


large allocations to this specialist alternatives sector suggest there will be increased demand for hedge funds in the near future.


David Chin


Managing Director Basis Point Consulting


FAMILY OFFICE: ASIA TOMORROW 103


ALTERNATIVE INVESTMENTS


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