Family offices continue to support hedge fund investments despite the challenges of 2012, JPMorgan has found.
JPMorgan's Capital Introduction group surveyed almost 100 family offices, representing over $50bn of assets under management (AuM) invested in hedge funds.
The survey showed a strong appetite for hedge fund investments, with 34% of family offices looking to increase allocations, up from 27% last year. Only 5% said they were looking to reduce their allocations to hedge funds, down from 14% in 2012.
JPMorgan found family offices were more likely to invest with smaller, boutique managers. Just 10% of family offices surveyed said they would only consider investing in managers with more than $500m in assets under management. By contrast, 86% said they would be prepared to invest in managers with AuM of less than $100m and 90% in managers running less than $250m.
More than a third (37%) of family offices said they intended to increase allocations to start-up managers while a similar figure (35%) said they were happy to invest in managers at inception – although of these, 75% demanded a fee discount.
While 65% of family offices required managers to display some kind of track record, this ranged from six months (in 8% of cases) to three years plus (20%). Track record appetites remained more or less static between this year and last.
Other notable conclusions from the survey included the fact that family offices have greater liquidity requirements than other investors. A third (32%) said they require monthly liquidity, up from 14% in 2010.
This greater demand for liquidity seems to be at the expense of longer-dated lock-up periods, as semi-annual liquidity fell from 8% to 1% between 2010 and 2012, while annual liquidity fell similarly, from 6% to 1%. Quarterly redemptions were mostly static (52% in 2010, to 49% in 2012).
In terms of risk and due diligence, family offices reported that risk transparency was a top concern, with 94% of respondents demanding at least moderate risk transparency from their hedge fund managers and 21% requiring a high level of transparency.
Yet they were also quicker to complete due diligence – almost half (47%) said they completed due diligence in three months or less, with just 21% taking between six months and a year.