The Ultra-Wealthy and Hedge Funds


The rate of return is the primary factor that would generate a greater interest in hedge fund products, according to a study of ultra-wealthy investors conducted by Spectrem Group.

A new Spectrem Group report, Use of Hedge Funds and Private Equity in the Portfolios of the Wealthy examines hedge fund investment attitudes among households with a net worth of at least $25 million (not including primary residence). Overall, 42 percent of these ultra-wealthy investors surveyed. That percentage increases with wealth, but decreases as investors get older, when risk tolerance tends to be become more moderate or conservative.

Of those hedge fund investors, one-third (34 percent) invest in long/short hedge funds, while 29 percent make investments in registered funds or liquid hedge funds. One-fourth of wealthy investors place investments in market neutral hedge funds and 23 percent place funds in event-drive hedge funds.

All of those funds have different rates of return and fluctuate independent of each other. For that reason, most investors place funds in more than one hedge fund, acting as a “hedge’’ against one fund failing to perform up to expectations.

Almost four-in-ten ultra-wealthy investors (36 percent) said that a hedge fund’s rate of return would drive a greater interest in hedge fund products. Twenty-three percent would be further interested in hedge funds as a means to achieve greater diversity in their investments, while 22 percent would follow their financial advisor’s advice regarding hedge funds.

When asked what factors would drive a greater interest in hedge fund products, 17 percent responded “mitigate risk,” while 10 percent responded, “take on more risk.” Nearly four-in-ten said “none of the above” or they were “not sure.”


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