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Hedge Funds Remain High-Net-Worth Strategy of Choice

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CHICAGO (–Wealthy families and individuals are still pouring money into hedge funds, according to some preliminary research data coming from Cap Gemini Ernst & Young.

Sponsored by Merrill Lynch & Co. Inc., Cap Gemini Ernst & Young released a prelude to its World Wealth Report due to be completed by June. Researchers canvassing wealth management advisers, product specialists, investors and independent research companies found that hedge funds are still in vogue as high-net-worth investors seek protection from losses by increasing the ratio of non-correlated instruments though hedge fund investing.

For the wealthiest families, a total of 30% of their assets are allocated to alternatives, said Sophia Chappuis, a manager with Cap Gemini, New York. The alternative investment of choice still is hedge funds, according to Ms. Chappuis.

The executive briefing of the Cap Gemini report shows that interest from such wealthy investors helped the S&P Hedge Fund Index grow by 11% in 2003. According to the report ultra-high-net-worth investors (individuals with US$30 million or more in investable assets) have been driving the growth and are treading on the domain that traditionally belongs to institutional investors.

Officials also estimate that almost 73% of U.S. high-net-worth investors hold hedge fund investments. That figure is not expected to diminish anytime soon.

What may change, according to the initial report, is that the type of hedge fund strategies used may change as the equity markets perform better than they have recent years.

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