Rising Number of Hedge Funds Shift to Family Offices

The hedge fund population is getting thinner as more and more firms convert to family offices, according to news site and peer group network COOConnect. “Hedge funds are increasingly contemplating launching family office structures and we have seen north of 100 different funds converting to family offices,” said hedge fund sales director Keith Gertsen.

“The primary reason for this is the cost of regulation and maintaining operational overheads. Total spend by hedge funds on operational and back office functionalities is very high, and consumes a significant chunk of Assets under Management (AuM),” he added.

Considered as further catalysts for the institutionalization of the hedge fund sector, are the constantly demanding regulatory changes that cause higher operational costs and management fees. “The Citi Hedge Fund Expenses Benchmark Survey published in early 2014 found the average manager required at least $310 million for their two per-cent management fee to pay for their regulatory and operational expenditures,” COOConnect added.

The impact of these overwhelming fees to the hedge fund industry came like a nuclear bomb last yearas the number of new hedge fund manager start-ups fell by 40 per cent compared to 2013 – the lowest record since 2003.

Some of the regulations that increase barriers to entry, due to the financial demand that they impose,include Alternative Investment Fund Managers Directive (AIFMD), the Foreign Account Tax Compliance Act (FATCA), the Dodd-Frank Act in the US and the European Market Infrastructure Regulation (EMIR).

Of these regulations, KPMG’s case study “The Cost of Compliance” shows that AIFMD has the highest cost of compliance (with about 46 per cent of all respondents voting for it), followed by SEC registration and reporting and FATCA.

Results of the study further imply that the hedge fund industry is allocating at least USD3 billion on regulatory compliance alone, including technology, headcount and third-party vendors.

Explaining the negative impact of these rising costs to new players, a fund manager from Asia shared that, “The entire nature of the alternative investment industry – particularly the hedge fund industry – is one of innovation and finding new ways to achieve alpha. There’s no doubt that regulation is constricting this and making it harder for new players to enter the market.”

Meanwhile, hedge fund managers that have made it to the game but struggling to survive find salvation in shifting to family offices. Aside from lower operating costs, Hannah Shaw Grove, a family office expert and board member of the Hedge Fund Association., shared that one of the main reasons why even successful hedge funds switch to that industry is because family offices are not as constrained by investment objectives as a pure-play asset manager.

“Other family priorities such as tax efficiency, philanthropy and asset protection can be considered and more fully accommodated in the investment process than they might be otherwise,” she added.

Brand Development 101: Employees as Brand Ambassadors

Many companies pour tens of thousands of dollars to get the hottest celebrities as their endorsers. The fact is, they often forget that in brand development efforts, the best possible ambassadors of their brand are already right under their nose.

Here are ways to turn your employees into the best ambassadors your brand could ever have:

Educate them about your brand and marketing goals. Aside from the general orientation about the company’s mission-vision during the on-boarding process, educate your employees about your marketing goals and strategies. Discuss to them your key messages and communication platforms. This way, they will appreciate the value of sharing the posts on the company Facebook page, or adhering to the branding guidelines.

Always give them free samples of what your company produces. Wouldn’t it be a pity if someone goes to a chocolate shop, asks the attendant for recommendation, but the latter cannot give satisfactory answers because he has not tasted any of the items he is selling? Aside from giving them another reason to stay and continue to work for you company, offering your employees a sample of your products allows them to vouch for their quality, and in a sincere way, too. They can also serve as a good source of feedback, and they will respond honestly because it will be in their best interest if it becomes a hit.

Give them branded materials that they can use everyday.Giving your employees shirts, mugs, pens, and other whatnot, branded materials or items that bear your company logo is a great way to turn them into walking advertisements of your brand. And especially if the items are well-designed and have good quality, they are seen as a reflection of the company, and can even inspire thrilling conversations. Each employee should also be provided with a set of business cards that they can hand to new acquaintances. You’ll never know how many people they meet on a daily basis outside of work, and these can belong to either your target market or your future industry partners!

Compensate them well, and treat them well. When employees are happily working for your company, you can expect them not only to deliver great output, but to always have good words for your brand. How to keep them happy? Pay them well, and observe exemplary labor practices. Reward them for getting things done above expectations, and create a fun and respectful environment where they feel that their voice matters.

Learn more about brand development by partnering with marketing experts today.