“Recently one of my acquaintances jokingly said, “”I would love to have to pay taxes on a million dollars, because that means I would have a million dollars.”" This acquaintance, like so many other individuals in the world want millions of dollars without the stewardship that people who earn a million dollars have. Why do you think the lottery is so popular? It is a misconception that people think winning the lottery will make them happy. In order to win that kind of money, you must be lucky. So, they go throughout there life hoping and dreaming for the big score that will give them there millions which will give them there key to happiness. This is a great fallacy. Recently I learned that when someone in Florida wins the lottery, they also win sessions with a therapist. Why, because they don’t know how to handle large amounts of money. The Lotteries found that people who won, often found themselves in worse conditions a few months after winning the lottery than before they won. Why weren’t these lottery winners able to handle these large amounts of money? Because they acquired it without stewardship.

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Tags: business, ethics, stewardship, ethical, wealth

Below please find the Family Offices Profile for Bonner & Partners Family Office. If you need contact details for this family office please refer to FamilyOfficesDatabase.com

Resource #1 (7.8.09) Raife Neuman, of Bonner & Partners Family office, continues his campaign on the injustices of the American education system.

As we all know, often the better you do the more the government wants to penalize your success. Families and college students often pay exorbitant costs for education. And, as I wrote last week, students who go on to get a professional degree are often saddled with loads of debt – creating a new class of indentured servants. You’d think the IRS could cut them a bit of a break. But you’d be wrong.The tax code says “all or part” of a scholarship or fellowship “may be tax free.” The emphasis should be on “may” because you have to meet these strict conditions to avoid taxes Read more…

Resource #2: Simon Mellon, who’ll be heading up Bonner & Partners Family Office, our soon-to-be-launched money management and tax optimization service, is keeping in close contact with Notes HQ.

Simon is a global finance insider with a decade’s worth of experience working in capital markets. And right now he’s advising investors to remain cautious until a clearer picture emerges about the market’s direction. Read more…

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Family Office Growth

Many business dinners over the past 18 months have revolved around the topic of “what does well during a deep recession or depression?” Here is a recent article about how family offices
have benefited from the events within the financial sector over the past few years:

Tumbling markets and redemption waves have been murder on hedge funds, but the turmoil will free up top-tier talent for a quiet but well-heeled corner of the market: family offices.

The world’s wealthiest, not content to hand their fortunes to brokers and banks, can afford to build their own money management businesses. These offices, which would never be considered by top fund managers during the go-go years, suddenly look attractive thanks to their stable capital and long-term investment horizon.

“You follow the money. Right now that is leading people to family offices,” said Greg Coules, a former hedge fund manager…source

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Family Office Growth

Many business dinners over the past 18 months have revolved around the topic of “what does well during a deep recession or depression?” Here is a recent article about how family offices
have benefited from the events within the financial sector over the past few years:

Tumbling markets and redemption waves have been murder on hedge funds, but the turmoil will free up top-tier talent for a quiet but well-heeled corner of the market: family offices.

The world’s wealthiest, not content to hand their fortunes to brokers and banks, can afford to build their own money management businesses. These offices, which would never be considered by top fund managers during the go-go years, suddenly look attractive thanks to their stable capital and long-term investment horizon.

“You follow the money. Right now that is leading people to family offices,” said Greg Coules, a former hedge fund manager…source

This article was first published by the Family Offices Group on FamilyOfficesGroup.com.

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Hedge Fund Loans

Corporations Seeking Capital From Hedge Funds

I’ve noticed a marked increase in the number of news stories, email inquiries and conversations over the past 4 months regarding private firms including corporations, patent portfolio companies and real estate groups seeking capital from hedge funds. This is for obvious reasons but is interesting none the less as many hedge funds may continue to pursue this “bank-like” strategy long after the dust settles. Small companies are always hungry for capital and many will agree to very aggressive terms in order to get to the next level. Here’s a short piece on this trend:

Smaller companies on the junior Alternative Investment Market (AIM) are being forced to borrow cash from hedge funds at “usury rates” in order to survive, Square Mile insiders have warned.

Some cash-rich fund managers are avoiding volatile equity and bond markets and instead lending to AIM firms, lured in by the prospect of earning giant fees.

“The kinds of costs involved in borrowing from some of these guys are huge,” said one city chief executive. “But they have no alternative in many cases because traditional bank lending has dried up. It’s like you or me being desperate enough to go and borrow from the local thug with a baseball bat.” The practice is thought to have crept in over the past few months as companies have suffered at the hands of the credit crunch during the summer. Read more…

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Prime Brokerage Boston

Prime Brokerage Boston – Meeting Notes

Yesterday I had a lunch meeting with two prime brokerage professionals in downtown Boston and the conversation quickly turned to the high demand for cap intro services for hedge funds.

The main problem with capital introductions being made by prime brokerage firms is that many hedge funds are not competitive enough to market. Many managers with negative or sub-par performance would still like to grow their business but the fact is most investors won’t consider hedge fund managers who are both relatively small and have mediocre or poor performance, there is nothing engaging enough that will convince investors to look past those two facts, they hear hundreds of stories and see as many teams pitching their outlook on the markets each year.

This leaves prime brokerage firms with two choices – offer capital introduction services knowing that there is almost no chance of raising assets or tell the hedge fund manager that they will not be able to market their strategy. The best prime brokers will often help with pre-marketing activities such as operational and risk assessments, marketing material scrubbing, newsletter development, etc.

This may seem straightforward but it is often an unsaid thorn in the side of prime brokerage firms offering capital introductions for hedge fund managers. They want to provide this service to everyone possible but by nature only 10-25% of all clients really qualify for the service.

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Pequot Capital

Pequot Capital Management

The following piece on Pequot Capital Management is being published as part of our daily effort to track hedge fund events and managers in the industry. To review other hedge fund related announcements and manager notes please see our Hedge Fund Tracker Tool.
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Resource #1 (5.26.09) Arthur Samberg, among the best-known hedge-fund managers, is closing down his firm amid an ongoing investigation into possible insider trading.

“Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction,” Mr. Samberg wrote in a letter that was sent to investors of his Pequot Capital Management Inc source

Resource #2: (12.9.08) Documents filed in a Connecticut divorce case disclose that Pequot Capital Management C.E.O. Arthur J. Samberg or his hedge fund is making so-far-unexplained payments of $2.1 million to a former Microsoft employee who figured in a now-closed insider-trading investigation of Samberg.

The Securities and Exchange Commission closed its investigation of Samberg in 2006 without filing any charges, although the Senate Judiciary Committee a year later faulted the S.E.C. for the way it conducted the investigation and allegations that a related case had been influenced by politics.

Records obtained from Connecticut Superior Court in Stamford show that Samberg or his firm has paid the former employee, David Zilkha, $1.4 million in two equal installments since April 30, 2007, and has promised an additional $700,000 in April 2009. source

More Resources

• In 2004, Pequot expanded its upper management team. “Employee-owned, Pequot Capital offers funds that focus on technology, health care services, and small-cap firms to institutional investors and wealthy individuals.”
• Pequot Management’s venture capital arm, “Pequot Ventures” split from the company and formed “FirstMark Capital”. The move was described as “the next logical step” for both Pequot Capital and Pequot Ventures. The move does not appear to effect Pequot Capital’s Hedge Funds since Pequot Ventures was run separately from the rest of the firm.
• Pequot Capital Management’s Chief Investment Strategist shares his ideas during a Financial Round Table Discussion in January 2008. He believes the current market condition and credit crisis are more serious than most people believe. He also thinks that many investors under estimate the seriousness of the energy situation as well.
• A Congressional report came out that the SEC made a mistake in its dealings with Pequot Capital Management. Pequot was suspected of insider trading. The report says the SEC mishandled the case by making a series of mistakes to compromise the investigation. The SEC closed its investigation of Pequot without taking any action against the firm.
• Pequot Capital is the majority shareholder of Midwest Air Group Inc. (8.8%) Midwest Air considered pursuing a “$16 per share all-cash proposal from a private equity firm and its consortium.” Pequot Capital Management wrote a letter to the company claiming that this proposal is not in the best interest of the shareholders and that a cash and stock deal would be better. The article contains a copy of the letter sent to Midwest Air.
• Pequot Capital Management’s chief investment strategist Byron Wien’s August 2008 market commentary focuses on South America. He specifically mentions how Brazil has become a hot bed for growth and the country has seen a huge inflow from US investors. He also discusses why Argentina, Brazil’s neighbor, has remained relatively stagnant.
• New development at Pequot Capital Management called the “Emerging Manager Program” The idea is a pool of capital run by 13 managers using 12 different strategies. The article talks extensively about the firm and its global strategies and risk management.
• Byron Wien’s top 10 surprises of 2007. He predicts oil and gold prices will rise despite a world wide economic slowdown. He thinks Asian emerging markets will peak, and focus will shift to Latin America.
• Byron Wein’s predictions for the top surprises of 2008. He predicted a US recession, a surge in commodity prices, and rising inflation. He also thinks Obama will be elected president in the upcoming election.
• Pequot Capital recently launched a global long/short fund in April 2008, its second new Hedge Fund of the year. The “Pequot New Vision Fund” contains $18.1 million is assets. The Fund will attempt to earn “attractive returns with consistent alpha by identifying global emerging growth opportunities that are fundamentally mispriced by the market”
• Provides a brief snapshot of Pequot Capital Management. Contains descriptions of the firm’s overall strategies and tendencies. Also mentions the company directors and where the offices are located.
• From Dec 2007, the article talks about the firm’s Short Credit Fund up 18% YTD. The fund placed bets on rising mortgage defaults that paid off big with the current credit and sub prime mortgage crises.
• Dated Nov. 2007. Talks about the Global Core Fund, the “flagship fund” with $2.6 billion in assets has gained 37% YTD under the management of founder Art Samberg and Mike Corasaniti. The firm also decided to close 3 poor performing funds and move the money into other core funds.
• Talks about the plan for Pequot Ventures to break away from the firm and become an independent private equity firm known as FirstMark Capital. Pequot will still be affiliated with the newly independent firm. . One of the major reasons for this potential split is that the Hedge Fund has decreased its interest in the technology sector, while the VC branch still focuses primarily on tech.
• Pequot teams with Pangaea Capital in Singapore. The firm’s focus in Asia has become “distressed assets” instead of “publicly traded stocks” Pequot has made a strong push into Asia, as the firm traditionally invested in US equities. Pequot’s was seeking $300 million for its Pequot/Pangaea Asia Opportunities Fund.
• This pdf file is an interview with an employee at Pequot Ventures, the VC arm of Pequot Capital Management. He talks about what the firm looks for in their employees. He also discusses the investing strategy of the firm.

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Hedge Funds Explained

Hedge Funds Explained – Multiple Resources

I often get emails asking about hedge funds, asking for explanations on what hedge funds do, how they earn returns for investors and how they differ from mutual funds. Below please find several resources which help explain what hedge funds are:

• A short video answering the question: What is a Hedge Fund?
• A short Hedge Funds FAQ on HedgeFundBlogger.com: Hedge Funds FAQ
• A collection of over 30 videos related to the hedge fund industry: Hedge Fund Videos
• The free Hedge Fund Blog Book – online at http://HedgeFundsBook.com
• Free Educational Daily Hedge Fund Newsletter: Hedge Fund Newsletter

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System Absolute Return

SAR Launches Volatility FoFs

The following piece on System Absolute Return is being published as part of our daily effort to track hedge fund events in the industry. To review other hedge fund related announcements please see our Hedge Fund Tracker Tool.
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Zurich, Switzerland-based System Absolute Return has launched a segregated portfolio with exposure to two volatility arbitrage strategies. The SAR Four Seasons SP will invest in two hedge funds: One manager has applied a split/strike conversion strategy and the other has applied a short strangle strategy , protected via a long position in the volatility index, according to the firm. The two strategies are managed separately by a U.S.-registered investment advisor and by a broker/dealer, respectively.

“With one underlying fund closed to new investments and the other quickly approaching that point, SAR’s feeder not only provides access, but also 1:1 leverage on these investments,” said the firm. “The underlying hedge fund managers are truly legends in their fields and this SP provides a unique opportunity to gain exposure to their strategies.” Read more…

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Socially Responsible Investing

Guide to Socially Responsible Investing

Socially responsible (SR) hedge funds integrate social and environmental criteria into their investment decision making process. Within this general framework socially responsible hedge funds follow a variety of investment strategies such as equity long/short, merger arbitrage and fixed income arbitrage.

The approach of socially responsible investors (SRI) generally fall under three primary categories: screening, community investing and shareholder activism. The screening approach involves both avoiding companies that do not uphold social and environmental standards (negative screens) and investing only in companies that uphold strict social and environmental standards (positive screens). Community investing targets companies and industries that have explicit social and/or environmental objectives. Carbon trading, renewable energy credit trading, ethanol trading and emissions trading are popular strategies, as are socially motivated industries like alternative emerging, microfinance and public healthcare. On the other hand, socially responsible shareholder activists leverage their role as shareholders to motivate change in social and/or environmental impact of the company.

Over the last few years, SRI has emerging from a niche market to become a potentially important player in the investment space. According to GreenMoney Journal’s 2007 report on SRI trends in the US, total assets under management of SR funds grew 13% between 2005 and 2007, a significant chunk of which was driven by the alternative investment space. All indicators point to a continued increase. Most of this is driven by investor demand, as more and more investors align their investment portfolios with their personal values and try to motivate social and environmental change through their investment strategy. However, a small and growing movement in the SRI space has been arguing that an analysis of a company’s environmental, social and governance (ESG) performance provides an effective measure of the management’s strength and therefore the company’s long-term financial performance.

White papers and reports related to socially responsible investing

• Global Change Associates has several excellent reports on hedge fund activity and trading strategies in energy and ‘green’ sectors.
• Goldman Sachs, “Introducing GS Sustain.” June 2007.In this report Goldman Sachs describes its proprietary framework that incorporates ESG analysis into long-term analysis of industry themes and cash returns valuation to pick stock and emerging industries. This PowerPoint presentation summarizes the performance of GS Sustain.
• Lydenber, Steven D. “Envisioning Socially Responsible Investing: A Model for 2006” Domini Social Investments, USA, Autumn 2002. Written in 2002, this article lays out what major initiatives must take place in the corporate, institutional and financial communities for SRI to become an important player in social, economic and political debates.
• Nocera, Joe. “The trouble with socially responsible investing.” International Herald Tribunal, April 2007.Nocera looks at the difficulties involved in evaluating a company’s social and environmental standards. In doing so, he also questions the value of relying on independent agencies like KLD Research to decide which companies socially responsible investors should consider and avoid.
• Standard and Poor’s, “S&P ESG India Index: Index Methodology.” January 2008. In this report S&P briefly outlines the eligibility criteria, index construction and index maintenance it uses in selecting companies for its S&P ESG India Index.
• Woll, Lisa. “The 2007 Report on Socially Responsible Investing Trends in the United States.” Green Money Journal, Summer 2008. This report is published every two years, and synthesizes the major trends in the SRI industry. In the process, it also provides a very good introduction to SRI.
• Yegnasubramanian, Anu. “Environmental, Social and Governance: Moving to Mainstream Investing?” Business for Social Responsibility, June 2008. Several major financial institutions have been developing analytical frameworks that include ESG criteria as part of their fundamental financial analysis results in better investment decisions. This report looks at the challenges behind the mainstream adoption of ESG criteria into investment decisions.

Information Sources

Corporate Social Responsibility Website is a news source covering corporate social responsibility. It is a good place to start researching the social and environmental profile of a company

Green Money Journal is a tri-annual journal covering major trends and events in SRI

KLD Research & Analytics is one of the primary independent research firms that cater to SRI managers. As such, it provides up-to-date news, independent research reports and benchmark indexes for the industry.

Centre for Responsible Business, University of California Berkley, Haas School of Business runs the Markowitz Research Program which examines the foundations and trends in SRI. As part of the effort, Lloyd Kurtz, Senior Portfolio Manager of Nelson Capital Management writes a blog that provides commentary on major SRI themes and also has a collection of quantitative studies related to SRI. The centre also runs the Markowitz Prize for Socially Responsible Investing, the only award that recognizes quantitative research in the field.

Social Investment Forum is a membership association for socially responsible investors and related organizations. It hosts an annual conference for members and puts together research related to SRI that ranges from basic definitions, to industry reports.

SRI-advicor.com is a good tool for socially responsible money managers with discussions on SRI strategy and interviews with prominent market players. This website is directed primarily towards traditional institutional investors.

SRI World Group is an up-to-date news source on issues and events related to social responsible investing as well as companies’ social and environmental profile. It also has a database of major companies’ social responsibility reports.

Guest post by Sharini Kulasinghe

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Hedge Fund Paralegal

Hedge Fund Paralegal Position Open

Just a quick note to alert you to a new job listing within the Compliance & Legal Hedge Fund jobs Category.

A hedge fund in Minnesota is looking to hire a paralegal this quarter. For more information please see the job listing page here: Legal & Compliance Jobs

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Private Equity Funds

Private Equity Funds vs. Hedge Funds

I just found an interesting PowerPoint presentation describing the different types of private equity funds and hedge funds available today. This is pretty high level but within one presentation it covers much of both industries relatively well.

Here is a direct link to the PowerPoint.

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Capital Campaign Fundraising

Capital Campaign Fundraising Best Practices

I grew up around capital campaign consulting and now working in hedge fund marketing and it amazes me how similar the two types of work are.

Both capital campaign fundraising and hedge fund marketing:

• Relies heavily on relationship cultivation
• Requires using the 80/20 rule to focus on the best prospects at hand
• Requires a multi-stage marketing/sales process to effectively move through the “marketing” campaign
• Demands an ability to sell the intangible. In one case you are selling the good feelings and community benefits of a large donation, in another the hopefully secure or proper management of your capital.

Some lessons that hedge fund marketers could probably learn from capital campaign fundraising consultants might be:

• Use internal champions to help ask for new investments. Using testimonials from a current investor or creating an environment which includes a few of your more supportive current investors with potential investors may be effective. Many times capital campaign consultants get volunteers from within the hospital or university they are raising money for to go out and help ask for gifts or in the case of hedge funds – investments.
• Stage your marketing campaign – Many capital campaign fundraising endeavors are managed a staged 3-4 step project helping the organization systematically develop close relationships with dozens of even hundreds of well qualified donors. Some hedge funds may take this same approach to marketing to a channel, such as family offices…but most that I have come in contact with do not. There are efficiencies in doing things in batches, so if your hedge fund marketing team consists of only 2-3 individuals it may help to try this approach.
• Market Research – Many development offices conduct thorough market research on their potential donors (investors). In the hedge fund marketing arena there is always a balance that must be struck between knowing who you are approaching for compliance and selling effectiveness reasons while not “wasting time” by spending hours researching a potential target investor. This is because many “targets” may not be searching for your strategy or may have minimum AUM requirements your fund does not meet and some research time could be wasted on these contacts. That said, many times no research is done on prospects in the hedge fund industry – and groups are simply cold called through directories, databases, and internal Sales CRM systems with no long of what the firm does besides their type of business.

Here is a site on capital campaign fundraising – Major Gifts Guru.

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High risk, limited liquidity, taxes, and lack of regulation make investing in private equity challenging. However, the payoff is very attractive making private equity an interesting asset class for family office. The article shows two different points of view (fund of funds and direct private placement) of how family office would enter in private equity.

From the standpoint of diversification and lowest assumed risk, a fund of funds may present the best entry point to private equity given that you do not have specialist who can perform extensive due diligence. Additionally, it is an affordable way to test the water than any other approaches. On the other hand, direct private placement represents the highest level of risk. You must have capability to perform in-depth due diligence, and dig into the portfolio companies of what really happen. The upside of private placement is of course that your return would out-perform anything on traditional security market. Read more on this here.

- Richard

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Dr. Alan Starkie, “Wealthy families are “insti-viduals”, individuals who have institutional needs in terms of complexity and sophistication”. As a result the family office market is rapidly evolving, with more family offices, more MFOs, leading to more demands on providers of services, and more outsourcing expertise needs. There are some favorable trends and facts that support the needs of outside consultants; buying support consult is cheaper than build it internally, generation changes, acquisition, specialization, lack of omniscience, independency, advanced technology.

To keep pace and take advantage of the myriad opportunities, good consultants need to differentiate themselves in the industry through their objectivity, specialized services, product and service mix, and technological sophistication. Rather than focusing on performance, they should concentrate on providing a level of service commensurate with the demands of “insti-viduals.” If they fail to do this, the perception will remain that consultants lack value added and wattage, are not “on the line” for results, and are not candid in their advice. Read more…

- Richard

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Single Family Office

Single Family Offices in Dubai

I just found this article about how Dubai’s DIFC is positioning itself as a center for single family offices. They seem to be very skilled at positioning themselves for new money to come in so I’m sure they will be successful in this area. The country is trying to build many legs to stand on – as they take advantage of their oil and tourism based wealth. Here is the article…

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New regulations provide platform for setting up family holding companies at DIFC

The Dubai International Financial Centre (DIFC) today announced new regulations to encourage family businesses to establish Single Family Offices (SFOs) at DIFC.

Created in consultation with the DFSA, the DIFC Single Family Office (SFO) Regulations specifically address the needs of family-run institutions and create a platform for wealthy families to set up holding companies at DIFC to manage private family wealth and family structures anywhere in the world.

HE Dr. Omar Bin Sulaiman, Governor of the DIFC said: “In recent times, family offices have become highly significant on the global economic landscape. In the Middle East, where family-run businesses make up over 75 per cent of firms and have total assets in excess of US$1 trillion, the need for a specialised legal and regulatory framework is especially acute.”

“In contrast to conventional financial institutions, Single Family Offices (SFOs) have no direct public liability as all their shareholders are bloodline descendants of a common ancestor. As such, their regulatory requirements differ significantly. By establishing the new Regulations, DIFC is once again reaffirming its commitment to family businesses and the development of DIFC into a hub for local, regional and international family offices.”

The enactment of the Regulations follows a period of consultation where companies were invited to comment on the proposed Regulations. Having received highly positive feedback, the new Regulations will come into effect on 2 September 2008.

Central to the new Regulations are changes to the DIFC Single Family Offices (SFO) platform and consequential amendments to other DIFC and DFSA regulations such as the DFSA’s General Module and Glossary Module.

The Regulations offer distinct benefits to Single Family Offices (SFOs) as they exclude them from many of the regulatory constraints placed on conventional organisations located at DIFC. Read more…

- Richard

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Single Family Office

Single Family Offices in Dubai

I just found this article about how Dubai’s DIFC is positioning itself as a center for single family offices. They seem to be very skilled at positioning themselves for new money to come in so I’m sure they will be successful in this area. The country is trying to build many legs to stand on – as they take advantage of their oil and tourism based wealth.

For those of you who do not know what family ffices are and how they relate to hedge funds please see this article: What are Multi-Family Offices?

For in detail information and insight please see Family Offices Group .com

Here is the single family office article…

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New regulations provide platform for setting up family holding companies at DIFC

The Dubai International Financial Centre (DIFC) today announced new regulations to encourage family businesses to establish Single Family Offices (SFOs) at DIFC.

Created in consultation with the DFSA, the DIFC Single Family Office (SFO) Regulations specifically address the needs of family-run institutions and create a platform for wealthy families to set up holding companies at DIFC to manage private family wealth and family structures anywhere in the world.

HE Dr. Omar Bin Sulaiman, Governor of the DIFC said: “In recent times, family offices have become highly significant on the global economic landscape. In the Middle East, where family-run businesses make up over 75 per cent of firms and have total assets in excess of US$1 trillion, the need for a specialised legal and regulatory framework is especially acute.”

“In contrast to conventional financial institutions, Single Family Offices (SFOs) have no direct public liability as all their shareholders are bloodline descendants of a common ancestor. As such, their regulatory requirements differ significantly. By establishing the new Regulations, DIFC is once again reaffirming its commitment to family businesses and the development of DIFC into a hub for local, regional and international family offices.”

The enactment of the Regulations follows a period of consultation where companies were invited to comment on the proposed Regulations. Having received highly positive feedback, the new Regulations will come into effect on 2 September 2008.

Central to the new Regulations are changes to the DIFC Single Family Offices (SFO) platform and consequential amendments to other DIFC and DFSA regulations such as the DFSA’s General Module and Glossary Module.

The Regulations offer distinct benefits to Single Family Offices (SFOs) as they exclude them from many of the regulatory constraints placed on conventional organisations located at DIFC. Read more…

- Richard

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Private Banking and Wealth Management

Private Banking and Wealth Management Trends

Below is a short excerpt from a recent article I wrote for Investopedia on family offices, private banking and wealth management trends:
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Family offices are private wealth management advisory firms that serve ultra-high-net-worth clients. There are more than 3,500 family offices based in the United States. By offering a complete outsourced solution to managing finances and investments, including budgeting, insurance, charitable giving, family-owned business, and wealth transfer and tax services, these offices set themselves apart from traditional wealth management firms. Although they vary in their level of service, most typically invest heavily in consultants, databases and analytical tools that help them conduct due diligence on money managers or optimize a portfolio of investments for tax purposes.

In this article, we’ll review the top three trends affecting family offices, including the rapid growth of the family office industry, the types of family office services provided, and the increasingly sophisticated use of hedge funds and alternative investments by both single and multifamily offices.

Family Office Facts
There are two types of family offices: single-family offices (SFOs) and multifamily offices (MFOs). Single family offices serve one wealthy family, while multifamily offices operate more like traditional private wealth management practices with multiple clients. Multifamily offices are much more common because they can spread heavy investments in technology and consultants among several high-net-worth clients instead of a single individual or family.

Tackling the Trends
Prominent trends fueling the growth of family offices include:

1. There is a growing number of high-net-worth and ultra-high-net-worth classes around the world. In most developed nations, the wealthy are accumulating assets more rapidly than the middle class. At the same time, many emerging economies are thriving, with annual growth rates of 4-8%. Many experts have noted that by 2015-2020, China’s upper class will be larger than America’s middle class. Growth in countries such as China, Brazil, India and Russia will ensure that the family office format of wealth management services continues to grow in popularity over the next five to seven years. (To learn more about emerging economies, see What Is An Emerging Market Economy? and Demographic Trends And The Implications For Investment.)
2. Profitability is a growing challenge for family offices. As populations amass greater wealth, large wealth management firms are competing on a cost basis and moving a larger portion of their core services online. While the average person might appreciate saving hundreds or even thousands of dollars in fees each year, many affluent individuals would much rather spend $20,000 to $100,000 a year to ensure that experienced professionals are managing their investments and taxes to fit their specific financial goals and risk tolerances. Read more…

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Private Wealth Management

Private Wealth Management Trends

Below is a short excerpt from a recent article I wrote for Investopedia on family offices and private wealth management trends:
_______________________________

Family offices are private wealth management advisory firms that serve ultra-high-net-worth clients. There are more than 3,500 family offices based in the United States. By offering a complete outsourced solution to managing finances and investments, including budgeting, insurance, charitable giving, family-owned business, and wealth transfer and tax services, these offices set themselves apart from traditional wealth management firms. Although they vary in their level of service, most typically invest heavily in consultants, databases and analytical tools that help them conduct due diligence on money managers or optimize a portfolio of investments for tax purposes.

In this article, we’ll review the top three trends affecting family offices, including the rapid growth of the family office industry, the types of family office services provided, and the increasingly sophisticated use of hedge funds and alternative investments by both single and multifamily offices.

Family Office Facts
There are two types of family offices: single-family offices (SFOs) and multifamily offices (MFOs). Single family offices serve one wealthy family, while multifamily offices operate more like traditional private wealth management practices with multiple clients. Multifamily offices are much more common because they can spread heavy investments in technology and consultants among several high-net-worth clients instead of a single individual or family.

Tackling the Trends
Prominent trends fueling the growth of family offices include:

1. There is a growing number of high-net-worth and ultra-high-net-worth classes around the world. In most developed nations, the wealthy are accumulating assets more rapidly than the middle class. At the same time, many emerging economies are thriving, with annual growth rates of 4-8%. Many experts have noted that by 2015-2020, China’s upper class will be larger than America’s middle class. Growth in countries such as China, Brazil, India and Russia will ensure that the family office format of wealth management services continues to grow in popularity over the next five to seven years. (To learn more about emerging economies, see What Is An Emerging Market Economy? and Demographic Trends And The Implications For Investment.)
2. Profitability is a growing challenge for family offices. As populations amass greater wealth, large wealth management firms are competing on a cost basis and moving a larger portion of their core services online. While the average person might appreciate saving hundreds or even thousands of dollars in fees each year, many affluent individuals would much rather spend $20,000 to $100,000 a year to ensure that experienced professionals are managing their investments and taxes to fit their specific financial goals and risk tolerances. Read more…

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Hedge Funds in India

The Benefits of Offering Hedge Funds in India

Here’s a short article on how the Committee of Financial Sector Reforms in India might introduce hedge funds and why this would be a positive move for the Indian markets and fund industry as a whole.
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The Draft Report of the Committee on Financial Sector Reforms headed by Professor Raghuram Rajan was issued for comment in April 2008. Among the proposals that the high-level committee made was the introduction of domestic hedge funds. The committee feels that, “The presence of hedge funds would induce greater competitive pressure for other regulated fund management channels such as mutual funds.”

This week’s article discusses the benefits of introducing hedge funds in the Indian market. It shows how hedge funds could improve asset price efficiency. Besides, such funds, by virtue of their diverse investment styles, could provide investors an opportunity to enhance their risk-adjusted portfolio returns.

Of different genre

Suppose a long-only (mutual fund) manager and a hedge fund manager both have a negative view on SBI, a positive view on HDFC Bank and a neutral view on ITC.

Long-only active managers will buy ITC in the same weight as their benchmark index, may overweight HDFC Bank and may not take any exposure in SBI. There is a reason for such a strategy. Active managers strive to beat their benchmark index. But they do not take too many active bets, lest their bets go wrong. Often, active funds tail the benchmark index with few active bets. Importantly, such managers cannot short-sell to take advantage of their negative view on a stock.

Hedge fund managers’ do not suffer from such constraint. In the above example, the hedge fund manager may overweight HDFC Bank, short-sell SBI and not take any exposure in ITC.

Better still, to neutralise any market risk, the hedge fund manager may buy HDFC Bank and short-sell SBI in such a way that the market risk in HDFC Bank is offset by short-selling SBI. Often, neutralising market risk on a portfolio would mean short-selling Nifty futures.

Exploiting price inefficiency

Hedge funds identify mispriced assets and exploit any price inefficiency. One way to do this is to employ statistical arbitrage.

Suppose a hedge fund manager finds that combination of one share of HDFC Bank and two short shares of SBI (1HDFC – 2SBI) has a stable statistical distribution. If the “spread” wanders far away from its mean, a hedge fund manager would set-up this strategy with a view that the “spread” will tighten. Such relative-value strategies can help arbitrate away asset price inefficiencies in a “normal” market. Read more…

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Active Account

Active Account Glossary Definition

An active account is a brokerage account that makes many transactions. Some brokerage firms charge a fee to accounts that are less active. This is a way for brokerage firms to make money on accounts that otherwise would not generate revenues.

Read dozens of additional articles like this within the guide to Hedge Fund Terms.

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Balyasny Asset Management LP

Balyasny Asset Management LP & Barry Colbin

The following piece on Balyasny Asset Management LP is being published as part of our daily effort to track hedge fund events in the industry. To review other hedge fund related announcements please see our Hedge Fund Tracker Tool.
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Balyasny Asset Management LP recruited more than 30 money managers and analysts from competing hedge funds in the first eight months of the year, exceeding its total for all of 2007.

“We have been aggressively looking for talent, and in a year like this, there are a lot more candidates out there,” said Barry Colvin, vice chairman of the Chicago-based firm, which oversees $2.5 billion. Hires came from New York-based Satellite Asset Management LP and Magnetar Capital LLC in Chicago, which have both lost money this year.

While more than 200 hedge funds shut down this year, Balyasny, SAC Capital Advisors LLC and Citadel Investment Group LLC are taking advantage of the industry’s worst performance in a decade to go on a hiring spree. Hedge funds, diminished by a scarcity of credit and enfeebled stock markets, fell by an average 4.7 percent as of Aug. 28, according to data compiled by HFR inChicago. Sixty-one percent of the 2,795 funds managing more than $100 million that are in New York-based HFN database are losing money in 2008.

Most hedge funds have what are known as high-water marks that prevent them from collecting performance fees, usually 20 percent of investment profits, until they recoup declines from peak fund values. That leaves a shrinking base of management fees, typically 2 percent of assets, to pay employees. Read more…

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Vallea Capital

Vallea Capital – Hedge Fund Notes

The following piece on Vallea Capital is being published as part of our daily effort to track hedge fund events in the industry. To review other hedge fund related announcements please see our Hedge Fund Tracker Tool.
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Management company Vallea Capital has launched the macro long/short Vallea Fund. The hedge fund aims to achieve consistent above average returns by exploiting long-term and short-term opportunities through investments in fixed income, foreign exchange and global stock indices.
The target is to raise $100 million in the first 12 months.

The fund is co-managed by Alessandro Palmarella and Pascal Monnerat of the fund advisory company BelleVue Conseils Sàrl. Together they have 45 years of industry experience and have traded this strategy together successfully for eight years.

The fund is confident it has the expertise and non-correlated investment style to deliver above average absolute returns with low volatility in all market environments. The fund is domiciled in the Cayman Islands. Minimum investment is €100,000, management fee set at 2%, and performance fee at 20% subject to a high water mark. The hedge fund was launched September 1, 2008. Read more…

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Emerging Markets Fund

Emerging Markets Fund – List

Below please see a list of Emerging Market Funds, thanks to Investment Seek:

• Axiom Investment Management (Hong Kong) – emerging markets hedge fund focused on Asia.
• Farallon Capital Management
• Horseman Capital Management
• Marathon Asset Management
• Moon Capital Management
• Moore Capital Management – Moore Emerging Markets
• Sloane Robinson – SR Global Fund Emerging Markets, SR Vista Emerging Markets
• Thames River Capital (United Kingdom)
• Tudor Investment

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Iveagh Family Office

Iveagh Fund Launched

The family office created over 120 years ago to protect and grow the wealth of the Guinness family has launched a new fund. While many funds started by traditional wealth management firms are somewhat frowned upon in the industry or more heavily scrutinized I would think that if done right a family office fun could do very well. Family offices have unique needs – in having the right mixture of volatility, performance and reporting…and who best to understand those needs than another family office? Here is excerpt from the article:

Iveagh, the family office created 122 years ago to manage money for the Guinness family, has broadened the service it offers specifically to wealthy clients with the launch of a multi-asset fund targeting an annualized return of 9.5%.

The Iveagh Wealth fund is managed by the former senior vice president of Alliance Capital, John Ricciardi and Cambiz Alikhani, who joined Iveagh in September 2002 from Morgan Stanley to develop its fixed income proposition.

Extra input is provided by the Iveagh Investment Committee (IIC).
The fund combines valuation and behavioral analysis in a bid to achieve absolute returns over a market cycle.

It is a mirror of the Iveagh wealth management portfolio, which employs the optimization and asset allocation strategies Iveagh uses for its high net worth clients.

The optimized portfolio universe is drawn from alternatives (private equity, venture capital, hedge funds and structured products), real assets (precious metals, natural resources, global real estate), major market equities, emerging market equities, bonds and cash. Investments are almost entirely daily dealing quoted securities.

Meanwhile, the tactical asset allocation (TAA) strategy aims to increase the portfolio return and reduce downside risk by making tactical adjustments to holdings on a quarterly basis….

Read the full story here.

- Richard

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