Family offices managing the money of wealthy people are increasingly abandoning intermediaries and adopting a more hands-on approach to dealmaking rather than investing in private equity funds and hedge funds.
An annual survey by the Family Office Exchange revealed that roughly 81 percent of family offices have at least one full-time employee who's examining opportunities and making direct investments in companies as rich people lose hope in private equity funds and try to evade their fees. Last year, family offices allocated an average of 12 percent of their portfolios to private investments, of which 7 percent were direct investments while the remaining 5 percent was invested through funds.
Family offices intend to boost the share of portfolio assigned to direct private investments this year to the detriment of hedge funds, which have seen lower inflows from offices in 2016 as wealthy families bet they can grow faster by investing in businesses and real estate rather than stocks, bonds and hedge funds. Average allocation to hedge funds dropped to 10 percent in 2016, down from 12 percent in 2014, and 85 percent of respondents to the survey said they had no plans to increase the share this year.
The 118 offices polled reported an average return of 7.2 percent last year, bolstered by private investments which yielded 8 percent on average. The best-performing assets for family offices last year were natural resources with a 15 percent average return, followed by domestic equities with 13 percent and real estate investments with 9 percent on average.
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