New Family Offices Prefer Direct Investing to Hedge Funds
These firms aren’t going to allocate capital toward just anything, nor are they necessarily going to let someone else make those decisions for them.
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Family offices are big on DIY.
Just over 92% of family offices newly identified by FINTRX in the second quarter said they were most interested in direct investments. By comparison, just 10% said they were focused on hedge funds, versus nearly 40% of the broader FINTRX database mapping private wealth. The numbers suggest that newly established or identified family offices are showing a particularly strong appetite for investing directly in companies and other assets, rather than relying primarily on external fund managers.
“They’re working with families that made their own wealth from founding a business or from sports or movies,” said Patrick Galvin, FINTRX research associate and author of the report. “Because they made their own wealth, they trend toward the direct investment space.”
Over the Hedge
It’s not that family offices are necessarily souring on hedge funds, but rather that many are seeing more benefits in direct investing. “[It] offers a more legible proposition because the family can see the asset, the operator and the path to value creation,” said Ryan Austin, CEO of Arondight Advisors. He added that family offices are becoming more selective, and the exclusivity of hedge funds isn’t as desirable as it once was. “A hedge fund manager can no longer sell the category,” he told Advisor Upside. “It has to earn the mandate, strategy by strategy.”
The report also found:
- Almost 70% of newly classified offices are entrepreneurial, meaning the clients’ wealth was generated through founding, building or selling a business.
- FINTRX added almost 40 US-based family offices to its database in the second quarter, with a third coming from California and Florida.
“This represents the new age of wealth and these modern hubs like San Francisco, Silicon Valley and Miami,” Galvin said, adding that tech and real estate are the sectors where most of these families are generating their new wealth.
