Family Offices Hike Hedge Fund Allocations
Family offices are still contributing more cash to hedge funds, with managers benefiting from a step-up in allocations during the second quarter that boosted industry coffers to record levels, according to a new analysis published by Citi Private Bank.
Citi’s most recent quarterly Family Office Investment Report, which examined capital flows data, portfolio positioning, and investment decisions among approximately 1,200 single-family office clients worldwide, revealed that hedge fund allocations increased in all regions except Latin America during the second quarter. Private equity allocations increased significantly in some regions as well, reflecting family offices’ overall interest in alternative assets.
The report comes as new industry data reveals hedge funds have continued to perform well for investors despite the recent market turbulence. Hedge funds continued to increase their profits from the first half of the year in July, successfully managing the sudden increase in market volatility and the decline in technology stocks. They achieved a monthly return of 0.83%, resulting in an average year-to-date gain of almost 6%, as reported by Hedge Fund Research.
Chicago-based industry tracker HFR said total global hedge fund assets grew for the seventh consecutive quarter in the second quarter, rising $11 billion to reach an all-time high of $4.31 trillion.
Meanwhile, Citi Private Bank reported a mixed trend for family offices with larger holdings. According to the report, family offices recognized the worth of hedge funds in effectively navigating the intricacies of the present market conditions.
In total, hedge funds currently represent approximately 3% of the total assets held by family offices worldwide, while private equity constitutes 7.3% of the capital. In contrast, family offices had distributed approximately 35% of their total assets evenly among equities, and around 22.4% towards fixed income investments in the second quarter.
During the second quarter of 2024, family offices in North America raised their investments in hedge funds by 0.29%, though allocations were focused particularly on credit-based strategies, resulting in a total allocation of 2.4%. Private equity allocations remained relatively stable over the three-month period, experiencing a slight decrease of 0.03% on an equal-weighted basis. By the end of the second quarter, private equity allocations stood at 8.7%. Similarly, investments in real estate and commodities showed minimal activity.
“Hedge fund allocations went up in every region bar Latin America (equal-weighted basis), while the trend was mixed for family offices with larger portfolios at Citi Private Bank,” wrote Hannes Hofmann, head of the global family offices group, and Shu Zhang, head of the global investment lab, at Citi Private Bank.
In the EMEA region, the proportion that family offices allocated to hedge funds increased by 0.35% to reach 3.8%. Similarly, the proportion allocated to private equity strategies expanded by 0.75% to reach 8.4%. In the same manner, the Asia Pacific region increased its allocations to hedge funds by 0.26%, reaching a total of 3.6%. Meanwhile, private equity remained steady at 4.6% after experiencing a slight decrease of 0.08%.
Latin American family offices experienced a minor reduction in allocations of 0.09% in their hedge fund holdings, resulting in allocations of 3.3% at the end of the three-month period. Latin American family offices increased their investment in private equity strategies, raising their allocation by 0.32% to reach 5.3% for the quarter.