Wealthy Americans Reduce Hedge Fund Exposure

by Phillip Morton, Investors Offshore.com

24 January 2007

American households with a net worth of $25 million or more reduced their exposure to hedge funds significantly in 2006, according to a new report by financial services consultancy, the Spectrem Group.

Just 27% of those households owned hedge funds last year, down from 38% in 2005, according to the Spectrem Group report: “What’s in Your Portfolio?” This represents a decline of 29% in a year.

The Ultra High Net Worth segment as a whole, representing households with a net worth of $5 million or more not including primary residence (NIPR), saw total hedge fund exposure fall to 14% in 2006 from 17% in 2005. The decline was most prevalent among the wealthiest subset of this group, the $25 million-plus households.

“Hedge fund investing appears to have lost some of its lustre for the very richest Americans," suggested Catherine S. McBreen, Managing Director of Spectrem Group.

"A nearly one-third decline in the percentage of those households investing in hedge funds suggests the difficulties of 2006 have made their mark. This trend impacted the overall Ultra High Net Worth market, but no segment so significantly as the very wealthiest households. It will be interesting to see if the industry can restore its popularity among this important segment as 2007 progresses,” she added.

The mean balance invested in hedge funds by households with a net worth of $25 million or more (NIPR) was $1.6 million in 2006. For those in the $10 million-to-$25 million bracket the total was $547,000, declining to $202,000 for households with a net worth of $5 million to $10 million (NIPR). Ultra High Net Worth households altogether had a mean hedge fund balance of $739,000 in 2006.

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