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Family offices lose some appetite for hedge funds

Disappointed by the returns from hedge funds, many family offices are turning to smaller players and more niche strategies

11 Jan. 2017 2:41 p.m. GMT | Original article on fnlondon.com

When Antonios Kypreos started investing on behalf of his father’s estate in 2005, it didn’t have enough money to meet the minimum investment tickets that big hedge funds asked for. These days, it has the money to invest with those larger funds – but no longer the motive.

“We find a lot of times that when people get too much money to manage, the quality goes down,” said Kypreos, a partner at Axion Single Family Office. “It’s typically managers that are [managing] $1 billion and below that have the real edge. They aren’t able to take money from the pension and sovereign wealth funds.”

That lack of interest in larger funds is a sentiment felt by many executives at family offices, which manage the money of rich families, ranging in size from one man bands up to organisations with dozens of staff that manage billions of dollars in perpetuity.

Factors including disappointment with the muted returns of many hedge funds over the past two years mean some are retraining their focus on smaller managers or opting for cheaper alternatives to hedge funds. In the most recent Global Family Office report from by UBS and Campden Wealth, published in September, a third of the 242 family offices surveyed planned to reduce their hedge fund allocation. On average, the study found, family offices had cut their hedge fund allocation to 8% from 9% between 2015 and 2016.

Philip Higson, vice chairman of the global family office group at UBS, attributes this drop to the lacklustre performance of many hedge funds over recent years, particularly when compared to lower cost funds.

“People saw quite good returns without doing very much from some of their very cheap index exposure,” Higson said. “I think [family offices] were a bit unimpressed with the relatively low return profile of their hedge funds.”

However, there appears to be growing interest from family offices to invest with smaller managers and new hedge funds. Research from HFR in December found that although the total number of hedge funds is declining, smaller managers are attracting more investor capital, suggesting that “investors are becoming more comfortable and willing to allocate to innovative, emerging managers as a complement to more established holdings”.

Karim Leguel, head of client strategy for Europe, the Middle East and Africa at JP Morgan Alternative Asset Management, said that over the past year he has seen an increase in interest from ultra high net worth individuals and family offices in investing in niche hedge fund strategies, particularly firms that have assets under management of less than $500 million.

“We have seen more interest in having more exposure to newer managers and niche strategies,” Leguel said, adding that such funds can provide “a bit more alpha” at a cheaper cost and also tended to offer returns that were not correlated to wider markets. That means greater diversification than some larger hedge funds offer. “I think the benefits are not just performance,” Leguel said.

Not all family offices have the time or expertise to carry out due diligence on smaller hedge funds. UBS’s Higson said he had seen his family office clients increasingly opting to use multi-strategy managers, which allow an investor to commit to a number of smaller or emerging managers through one fund.

“We’ve had a lot of success with some of the multi-strategy managers,” Higson said. “Our clients are letting the multi-strategy fund platform manager do the homework on the up-and-coming managers… so we’ve indirectly been funding emerging managers.”
For hedge fund Devet Capital, targeting family offices and rich individuals was a natural choice when it was set up in 2015. The London-based firm collected £40 million for its macro strategy in 2016, evidence that such investors are keen on newer managers, according to co-founder Leonardo Marroni.

“Last year was a tough year for the industry as a whole in terms of overall performance and also the performance of the big names,” Marroni said. But he noted that Devet received “a lot of interest” and “some decent inflows” from family offices. “Considering how bad the year was for the industry,” he added, “it was a good result”.

Some family offices are not just committing to new managers, but are becoming their first investor in exchange for a slice of the new hedge fund firm’s management company.

Dan Farrell, New York-based chief executive of Privos Capital, said that his multi-family office was keen to seed new funds and then use its own network to help them increase assets under management.

“We are increasing our allocations to hedge funds this year despite the negative noise we all hear in the market,” Farrell said. “The best trade in today’s market for a family office looking to play in the hedge fund space is to seed an ‘old manager’ who has the guts to walk away from their established huge fund and its corporate Gulf stream and start his or her own hedge fund.”

Farrell added that consultants and larger investors were “slamming the door” on new hedge funds, creating “huge opportunities” for family offices.

Family offices may also opt to boost returns by going for cheaper products, such as alternative beta or index funds. Oliver Druce, head of capital introductions for Europe at Societe Generale, said: “If you are looking at a small family office that is very fee sensitive and has perhaps been disappointed by performance then they are going to be more attuned and looking at alternative beta or cheaper fee strategies.”

Druce added that family offices are getting savvier with how they invest in hedge funds and were regularly “reviewing and reallocating how they invest”.

Back at Axion Single Family Office, Kypreos sums up how many in family offices seem to be feeling – and where they want to put their money.

“What we have realised is that there are over 13,000 hedge funds in the US, [and] a lot of them to be honest don’t really offer much difference than say a leveraged stock market ETF,” he said. “But there are a small group of funds that are investing in more esoteric markets that are giving people access to things that are uncorrelated to the markets. That is the space we like to be in.”

Antonios Kypreos of Axion Financial Group Honored With the 2015 Five Star Wealth Manager Award

Antonios Kypreos named one of Delaware’s outstanding wealth managers.

Five Star Professional is pleased to announce Antonios Kypreos, Axion Financial Group, has been chosen as one of Delaware’s Five Star Wealth Managers for 2015.

Five Star Professional partnered with Delaware Today to recognize a select group of Delaware area wealth managers who provide quality services to their clients. Antonios Kypreos is featured, along with other award winners, in a special section of the August issue.

“I am honored to be awarded this recognition as a Five Star Wealth Manager in our local community. We started our firm, Axion Financial Group, to offer a unique investment advisory solution to our own family members and a select, limited group of clients in our community. We are very happy to be recognized for the value we provide our client group.” says Antonios Kypreos of Axion Financial Group.
The Five Star Wealth Manager award program is the largest and most widely published award program in the financial services industry. The award is based on a rigorous, multifaceted research methodology, which incorporates input from peers and firm leaders along with client retention rates, industry experience and a thorough regulatory history review.

“Based on our evaluation, the wealth managers we recognize are committed to pursuing professional excellence and have a deep knowledge of their industry. They strive to provide exemplary care to the people they serve,” Dan Zdon, CEO, Five Star Professional.

About the research process:

Now entering its 12th year, Five Star Professional conducts in-depth, market-specific research in more than 45 markets across the United States to identify premium service professionals.

Wealth manager award candidates are identified through firm nominations, peer nominations and industry qualifications, and then evaluated on 10 objective eligibility and evaluation criteria, including client retention rates, client assets administered, firm review and a favorable regulatory and complaint history.

Self-nominations are not accepted, and wealth managers do not pay a fee to be considered or awarded. The award is not indicative of the wealth manager’s future investment performance. For detailed information on the Five Star Wealth Manager research methodology visit http://www.fivestarprofessional.com.

The Five Star Wealth Manager award, administered by Crescendo Business Services, LLC (dba Five Star Professional), is based on 10 objective criteria: 1. Credentialed as a registered investment adviser or a registered investment adviser representative; 2. Active as a credentialed professional in the financial services industry for a minimum of 5 years; 3. Favorable regulatory and complaint history review (unfavorable feedback may have been discovered through a check of complaints registered with a regulatory authority or complaints registered through Five Star Professional’s consumer complaint process*); 4. Fulfilled their firm review based on internal standards; 5. Accepting new clients; 6. One-year client retention rate; 7. Five-year client retention rate; 8. Non-institutional discretionary and/or non-discretionary client assets administered; 9. Number of client households served; 10. Education and professional designations.

Wealth managers do not pay a fee to be considered or awarded. Once awarded, wealth managers may purchase additional profile ad space or promotional products. The award methodology does not evaluate the quality of services provided and is not indicative of the winner’s future performance. 555 Delaware wealth managers were considered for the award; 186 (34% of candidates) were named Five Star Wealth Managers.

*To qualify as having a favorable regulatory and complaint history, the person cannot have: 1. been subject to a regulatory action that resulted in a suspended or revoked license, or payment of a fine, 2. had more than three customer complaints filed against them (settled or pending) with any regulatory authority or Five Star Professional’s consumer complaint process, 3. individually contributed to a financial settlement of a customer complaint filed with a regulatory authority, 4. filed for bankruptcy, or 5. been convicted of a felony.

Antonios Kypreos Featured in The Suit Magazine

Axion-Suit-Magazine-Article-April-2015Antonios “Tony” Kypreos, the founder and co-managing partner of Axion Financial Group, a Bethany Beach, Del. boutique firm, was featured in the April 2015 Edition of The Suit Magazine, where he discussed his strategy of not making any financial moves for clients that he wouldn’t make for his own family.

“Our clients like the fact that we are on the same side of the table – in the same boat as they are,” Kypreos remarks in the article. “We are typically managing our own family capital resources at the same level or perhaps even more than what our clients have. They know they are working with someone who has the exact same day-to-day and year-to-year issues.”

Read the article in full by clicking here.

TONY KYPREOS – Featured Globe Trotter

Antonios (Tony) Kypreos

The son of two Europeans, Axion Financial Group founder and co-managing partner, Antonios (Tony) Kypreos is no stranger to travel. In fact, Tony has seen so much of the world that iluv2globetrot.com has named him their Globe-Trotter of the month for April of 2015.

Read the full post here to find out how many countries & continents Tony has visited as well as what it’s like to live abroad, and where he’ll be visiting next!

Axion Founder Interviewed by IE Business School

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Axion Financial Group founder and co-managing partner, Antonios (Tony) Kypreos was recently interviewed by Viet Ha Tran, Senior Associate Director of Admissions, Finance Master Programs of the IE Business School about his experiences in founding Axion.

The interview covers the motivations behind founding Axion Financial as well as the unique services provided by the financial firm that sets them apart from other investment firms. You can read the interview in its entirety here.

Axion Financial Group to Review Cypriot Market

axion-videoAxion Financial Group was recently invited to the Feburary 2015 Cyprus Investment Summit, hosted by the president of Cyprus Nicos Anastasiades. Axion Financial is currently looking at potential private investment opportunities in the Cypriot market.

Axion founder and co-managing partner Antonios Kypreos and fiance shown (left) at 2015 Cyprus Investment Summit.

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Antonios Kypreos Quoted on Who Trades

blogpost

High Frequency Trading is the term used to describe the process where computers are used to automatically and rapidly trade securities based on a pre-configured algorithm. WhoTrades.com recently published a blog post titled Weighing in on HFT: The Flash Boys are here to stay in which they quoted Axion founder and co-managing partner Antonios Kypreos on his thoughts in regard to high frequency trading. Click Here to read the original post.

Antonios Kypreos Featured in The Single Family Office

The Single Family OfficeAntonios Kypreos, founder and co-managing partner of Axion Financial Group is featured in Richard C. Wilson’s new book The Single Family Office: Creating, Operating & Managing the Investments of a Single Family Office.

In his book, Wilson presents transparent case studies, offers best practices, and outlines common mistakes to avoid when running a single family office. You can order a copy of The Single Family Office here on Amazon.com.

Antonios Kypreos Private Equity Interview

Axion Financial founder Antonios Kypreos gives an interview with Private Equity.

Well Known Hedge Fund Managers Have Trouble

Many well known and successful hedge fund managers have had trouble these past two years, beating the market and posting good returns for their fund investors/ limited partners.

It shows that just because a hedge fund manager has a well known name and great track record, that does not help in the ever difficult pursuit of beating the market year after year.

Even the most well known and respected managers will not always get it right 100% of the time.