Many Smaller Hedge Funds Are Raising Assets From Wealthy Investors And Single-Family Offices

From the subpar performance of many hedge funds to pension funds redeeming monies, there is the perspective that the hedge fund industry is in something of a tailspin. This perspective has a strong ring of truth to it. At the same time, there are corners of the hedge fund industry that is doing quite well.

Some smaller hedge funds are bucking the overall trend by putting up solid numbers and raising significant assets. Smaller hedge funds are those with U.S. $500 million or less under management. Quite possibly because of their size, they can be more nimble and able positive returns because of their relatively smaller base.

What is also quite telling is that these smaller hedge funds are bringing in new assets to manage from high-net-worth investors, especially single-family offices. According to Angelo Robles, founder and CEO of the Family Office Association, “We see that many family offices have not given up on hedge funds and other alternative investment funds. On the contrary, they’re researching more alternative investment funds and committing substantial dollars to the ones that stand out. Many of these alternative investment funds are not the big names in the industry. They tend to be extremely motivated managers at smaller funds.”

When it comes to high-net-worth investors, hedge fund performance – after tax performance – is the most critical factor. That is why a growing number of these smaller hedge funds are starting to embrace private placement life insurance (PPLI). “We’re seeing some very astute general partners at smaller, nimble hedge funds embrace PPLI,” says Peter Sasaki, managing member of CGS Financial Solutions, a leading private placement life insurance administrative platform. “For them, it’s proving to be a very useful way to both generate greater alpha and attract more affluent and single-family office investors.”

“There is little question that many smaller hedge funds are bringing in new monies from single-family offices,” says Robles. “At the same time, they will very often negotiate fee structures and terms with the general partners of the hedge funds they’re interested in, contributing to greater returns.”

In sum, while the hedge fund industry is under siege, there are pockets of success. A sizable percentage of wealth investors and single-family offices continue to entrust significant sums to hedge funds – particularly smaller hedge funds.