Family offices outsource CIO function as exposure to hedge funds rise

Family offices are increasingly outsourcing the function of the chief investment officer, as they aim to monitor more efficiently their growing focus on hedge funds, according to a top investment expert.

Charlotte Beyer, founder and chief executive of Institute for Private Investors, told CampdenFO: “Families are realising that monitoring their investment in hedge funds is not as easy as it used to be. In response, they are increasingly outsourcing the chief investment officer function to other firms.”

Beyer cited research by IPI, which found the number of American family offices outsourcing the CIO responsibilities doubled over the last six years.

CIOs at investment firms, consultants, wealth boutiques, multi family officers and private banks should benefit from this escalating trend, reckons Beyer.

Her comments follow the release of a new report by information services company Infovest21, which found that family offices in the US allocate around 26% of their portfolio to single strategy hedge funds.

The research also said that two-thirds of the respondents, which included 60% of single family offices and the remaining multi family offices, viewed hedge funds “very favourably”, while less than 5% were opposed to investing in hedge funds.

“American family offices were investing in hedge funds way back in the early 1990s. This accelerated further and then slowed down in response to the ‘gates provision’ on hedge funds. But the trend remains that hedge funds have been holding steady over the last few months, if not slipping up just a bit,” said Beyer.

The gates provision limits investors redeeming money from hedge funds.

More than 30% of the family offices surveyed by Infovest21 said there are good investment opportunities available in hedge funds. But Beyer reckons investors are wary of some problems with monitoring hedge fund risks.

“Families are increasingly concerned about their ability to monitor and assess liquidity risk or possible exit from a hedge fund. Another worry is the size of the fund – as funds become bigger, it is more difficult to get good returns,” she said.

“There is also worry that hedge funds may lose focus or take on a different strategy or style. But these are risks investors are willing to take,” she added.