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High net worth Americans reduce exposure to hedge funds

Date: Tuesday, January 23, 2007
Author: Hedgeweek.com

The proportion of rich Americans owning hedge fund investments declined in 2006, particularly those with investible assets of USD25m or more, among whom hedge fund ownership dropped by nearly 30 per cent, according to Spectrem Group, a Chicago-based consultancy firm specialising in the affluent and retirement markets.

According to a survey conducted by Spectrem last year of 526 US households with a net worth of USD5m or more excluding their primary residence, the proportion of households with assets of more than USD25m with hedge fund investments fell from 38 to 27 per cent, and hedge fund ownership also declined slightly, from 19 to 18 per cent, among households with between USD10m and USD25m in net assets.

The level of hedge fund ownership among households with between USD5m and USD10m did grow from 6 per cent in 2005 to 8 per cent last year, according to the Spectrem survey. However, overall the proportion of households that owned hedge fund investments in the ultra high net worth segment of the market, defined as having more than USD5m in assets, fell from 17 to 14 per cent.

'Hedge fund investing appears to have lost some of its lustre for the very richest Americans,' Catherine S. McBreen, managing director of Spectrem Group. 'A nearly one-third decline in the percentage of 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.'

The mean balance invested in hedge funds by households with a net worth of USD25m or more was USD1.6m in last year, USD547,000 for those with between USD10m and USD25m, and USD202,000 for households with a net worth of between USD5m and USD10m. Overall, ultra high net worth households altogether had a mean hedge fund balance of USD739,000 in 2006.