Definitions of an Asset Provider
Encompassing over 150 years of experience, our exceptional core team offer our clients the utmost professionalism in the delivery of unique and bespoke finance facilities.
Hedge Funds
A hedge fund is an alternative investment vehicle and they invest investors or pooled funds using alternative investment strategies. Hedge funds are usually able to generate much higher than average returns. These returns are referred to as active or Alpha returns which gauge the performance of an investment against the corresponding market benchmark. The increased return relative to the benchmark return is designated as Alpha.
Whilst hedge funds can offer some amazing returns there are also equivalent risks involved in their investment strategies, (the financial meltdown of 2007 – 2009 is a case in point). Hedge fund strategies vary, but a typical strategy is buying long and selling short be it currencies, shares or commodities.
The main investors in hedge funds are other investment companies or funds and ultra-high net worth individuals. Hedge funds originally enjoyed a 2-tier income stream being management fees of circa 2% and profit sharing where they take circa 20%. However, pressure has been put on their fee structure and now some hedge funds charge 0% management fees and a 30% performance fee.
The United States of America accounts for three quarters of hedge fund assets under management. As of the 30th June 2020, total global assets under management by hedge funds was USD 3.1 Trillion.
Private Equity Funds
Private Equity is designated as an alternative investment class. It represents private financing and investments in start-ups, on-going private companies and buy-outs to take to the private sector. Some of the investments can be viewed as venture capital as start-ups have no history of trading. Usually private equity investment in companies is between 5 and 10 years.
Investment in private equity funds comes mainly from institutional investors and what is termed sophisticated investors. Sophisticated investors are represented by high net-worth and ultra-high-net-worth individuals plus banks, insurance companies, large family offices and trusts.
These individuals and companies are able to invest their funds for long periods. This allows private equity funds for example to bring start-ups to the market or give extended time to turn around distressed companies.
The advantages of private equity for companies seeking investment is an easier access to investment capital and less stress on performance figures. Private equity funds enjoy on average two forms of earnings by charging a management fee and also a performance fee.
The ultimate aim of a private equity fund is to sell shares taken in the companies they have invested in from either private sales or initial public offerings, (IPO’s). The return is referred to as IRR, the internal rate of return which should be in excess of the price paid.
Sovereign Wealth Funds
A sovereign wealth fund is by definition an investment fund that is either government or state owned. The capital invested in these funds tend to come from fiscal surpluses, balance of payment surpluses, funds received from resource exports, (e.g. oil, natural gas, gold etc), the proceeds of privatisations to name but a few.
A sovereign wealth fund is set up for a multitude of purposes and many countries have more than one sovereign wealth fund each with its own unique objective. Set out below are a number of examples of sovereign wealth fund objectives.
- Diversification from non-renewable commodity exports
- Funding economic and social investment
- Earning higher returns than trading foreign exchange reserves
- Investing excess liquidity
- Protecting the economy from revenue volatility
The above are just a few of the notable objectives of sovereign wealth funds. Basically, sovereign wealth funds are investing their budget surplus. Traditionally sovereign wealth funds were passive by nature and invested government bonds and equities.
Today, sovereign wealth funds are more aggressive investing in high end private and commercial properties in such cities as New York and London. They are also investing in in alternative investments such as hedge funds and private equity. Further more volatile investments can be found in investment in emerging markets.
By 2020 it was reported by Sovereign Wealth Funds institute that over the last 20 years there has been a dramatic increase in the number of sovereign wealth funds. There now more than 91 of these funds accounting for USD 8.2 trillion in accumulated assets.
Private Family Offices
A family office is defined as a private wealth management discretionary and advisory company. Their clients are ultra-high-net-worth individuals. They offer a complete outsourced solution to managing both the investment and financial side of a clients needs.
The family office can also offer lifestyle management or a concierge service. This service would include travel arrangements, private schooling, managing private property, household arrangements, personal security arrangements, aircraft and yacht management.
There are many different family offices. The single-family office for example is owned by and wealth managed by one family. A joint family office or multi-family office, (MFO), will be set up by three or four families and that office jointly manages their wealth. The MFO is quite popular as they allow for cost sharing amongst the participants.
Recent research reports show there are 7,300 family offices world-wide an increase of 38% from 2017. Total assets under management are estimated to be in the region of USD5.9 Trillion, whilst the underlying family wealth is estimated to be USD9.4 Trillion.