Tuesday, January 31, 2023

Hedge funds losing out to PE in family office plans



US family offices are planning much bigger allocations to private equity compared to hedge funds going forward.

Just 9% of US family offices canvassed by Royal Bank of Canada and Campden Wealth plan to up their hedge fund allocations in 2023, compared to 46% in private equity funds.

The hedge fund picture is brighter globally, with 16% of worldwide family offices planning an increase, but that still trails the 47% eyeing more PE exposure.

As it stands, US family offices have 4% in hedge funds on average and 8% in private equity (and a further 10% in PE-style direct investments).

“While last year we reported that family offices were hot on public equities given the considerable returns they garnered in 2020 (19 percent for developed and 16 percent for developing market equities), the key story this year is about private equity,” wrote the authors.

“Private equity has risen to centre stage with outsized returns, a notable rise in allocations since 2021 and significant interest from family offices intenting to increase their investment in this asset class over 2023.”

Royal Bank of Canada and Campden Wealth asked 179 family office firms with $182bn under management.

CPP Investments, the $529bn Canadian pension, and CalPERS, the largest US pension, recently became the latest big-name investors to bolster private equity holdings.

But doubts remain in investor circles, with Harvard Management Company recently highlighting the risk over a time lag in valuations.

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