Super-rich selling hedge funds

Super-rich seen buying gold, selling hedge funds

By Steve Lodge
Financial Times, London
Friday, November 13, 2009

http://www.ft.com/cms/s/2/cf7e4434-d03d-11de-a8db-00144feabdc0.html

The investment preferences of the world's wealthiest families have shifted significantly in favour of gold and other commodities and away from hedge funds in the wake of the financial crisis, according to a survey of family offices and advisers of the super-rich.

Two-thirds of the 100 respondents to a survey by the Family Office Channel, a new website, said that super-rich families are now more likely to invest in gold and other commodities. They are also more interested in bond investments and in holding higher amounts of cash as part of an "instinctive retreat to ultra-safe asset classes."

By contrast, two-thirds of respondents said the wealthiest families are less likely to invest in hedge funds and structured products -- investments offering capital protection -- with one in three reporting "greatly reduced" interest in these holdings.

Private equity and commercial property are also much less popular asset classes, while attitudes to residential property investment remain largely unchanged.

The findings confirm reports of a flight to "safer" asset classes, says the survey. Wealthy families' risk appetites have suffered from frauds uncovered in the financial crisis as well as the poor performance of investments. More than nine out of 10 respondents said the level of trust in financial institutions and investment advisers has been hit by the Madoff and Stanford frauds.

"Madoff, Stanford, and bank failures are not necessarily seen as one-offs -- families clearly feel they cannot rule out the idea that the failings symbolised by these events are systemic," according to the survey, which was conducted last month.

It also found that more than half of wealthy families have recently reviewed their tax position and structures as a result of increased scrutiny from tax authorities.

Two-thirds of respondents said their philanthropic activities have suffered in the downturn, but some wealthy families are said to be giving more to try to counteract the impact of recession on charities.