Investment in hedge funds has declined among multi-millionaire investors, but advisors are steering the richest toward the products.
Multi-Millionaire investors appear unlikely to invest in hedge funds in the current economic environment, according to a new Millionaire Corner study that tracks a sharp decline in assets held hedge funds over the past two years.
Multi-millionaires describe themselves as a largely moderate group of investors, and their appetite for alternative investments appears to be diminishing somewhat. Nearly three-fourths (74 percent) say they have set aside a portion of their assets for more speculative or higher risk investments, yet a smaller share is now invested across a broad range of alternative investments and the average balance held in these products is also lower than in 2010.
Less than half (47 percent) of multi-millionaires are currently invested in hedge funds, compared to 50 percent in 2010, according to the $25 Million Plus Investor 2012 study released today by Millionaire Corner. Assets held in hedge funds have declined more dramatically, from an average balance of nearly $4.6 million in 2010 to $2.8 million in 2012.
Industry-wide, hedge fund assets were $1.71 trillion in June, down 29.5 percent from their peak of $2.4 trillion set in June 2008, according the most recent TrimTabs/Barclay Hedge Hedge Fund Flow Report. According to a statement from Barclay Hedge president, Sol Waksman, “The hedge fund industry can’t seem to get out of the doldrums. Industry performance continues to lag popular benchmarks such as the S&P 500, and asset growth has been flat for most of the past year.”
Investors withdrew $32.1 billion from hedge funds in the 12 months ending in June 2012, according to the Barclay report. In the previous 12-month period, investors poured $103 billion into the funds. Fixed-income hedge funds have experienced the strongest inflows and best performance of the year. Charles Biderman, CEO of TrimTabs, said in a statement, “Fixed Income funds were a haven, reliably turning profits and attracting inflows as one crisis after another whip-sawed financial markets around the globe.”
Unlike fixed-income hedge funds, no equity-related hedge fund categories showed a profit over the past 12 months, according to Biderman, who said, “Investors hoping to cash in on hedge fund managers’ stock-picking skills must be disappointed.”
The rocky performance hasn’t discouraged financial advisors from recommending hedge funds to a significant share of multi-millionaire investors. Nearly half (49 percent) of investors with a net worth of $125 million or more says their advisor has encouraged them to invest in hedge funds.