Many investors look to see what the wealthy are doing when it comes time to get into the stock market. After all, these investors are wealthy because they’ve played the market right. For years, many of the wealthiest investors in the country have hedged their bets on hedge funds. But that is changing. Why?
These so-called “family offices” made up of the ultra wealthy have been putting a lot less of their money into hedge funds. Instead, they’ve been investing in other things like private equity firms.
So why the change?
For one, lately, private equity firms have been doing better than hedge funds, and they often charge lower fees. According to the Hedge Fund Research report, 2017 marked the third consecutive year that “family offices” have lowered their percentage of funds going toward hedge funds.
This year, hedge funds had a 2 percent return through August. At the same time, the S&P index was up 8.5 percent and it comes with lower fees.
Furthermore, hedge fund holdings now make up 5.7 percent of holdings in the average investment portfolio. That represents a decline of one-third compared to last year. Investors appear to be choosing instead to place their money directly into the stock market.