A network of family offices around the world say they are looking to increase allocations this year.

A network of family offices says that its members plan to boost hedge fund allocations this year in a bet against expected rising volatility and the threat of market drawdowns.

About 30 per cent of FOs polled by Family Office Networks in recent months want to boost exposures the sector.

“With the broader capital markets being down last year, family offices are looking for preservation of capital,” Andrew Schneider, founder and chief executive of Family Office Networks, said. 

Hedge funds fell into the red last year as markets sagged and turned choppier, but their losses were not as bad as broader market indices overall. The Preqin All-Strategies Hedge Fund benchmark, issued by Preqin, the research firm tracking the sector, returned -2.27 per cent, bringing the 2018 full-year losses to 3.42 per cent, the first negative year since 2011.

By comparison, the MSCI World Index of developed countries’ equities, measured in dollars, fell by 8.71 per cent (when capital changes and reinvested dividends are combined). The MSCI Emerging Markets Index, meanwhile, fared even worse as rising US interest rates and US-China trade tensions rattled investors - down by 14.6 per cent. With their traditional 2 per cent annual management fee and 20 per cent performance haircut revenue model, hedge funds have struggled to keep some investors’ faith in recent years – that 2/20 pricing structure has eroded. According to Chicago-based Hedge Fund Research, another firm tracking the sector, average management fees are around 1.43 per cent, while the average incentive fee is just shy of 17 per cent.

The fact that funds managed to avoid losses as large as those suffered by long-only traditional portfolios might give some comfort to the sector, however. According to HFR, its HFRI Asset Weighted Composite Index posted a narrow decline of just -0.8 per cent for the full year of 2018, far better than the broader market.

Family Office Networks is a network of 10,000 FOs with $15 trillion in assets.

The organization said that more capital is being allocated to traditional long/short, global macro and managed futures strategies. In addition, FON is seeing newer strategies grow in popularity for investment such as blockchain, artificial intelligence and cannabis funds.