Hedge fund diversification: the rise of one-member clubs
Regulators and clients are concerned that an explosion in the number of loosely regulated single family offices could raise potential conflicts
Step inside Table Management, an obscure investment firm in New York, and something strange happens: you are transported to the rarefied realm of Bill Ackman, the billionaire hedge fund manager.
Table, it turns out, is sort of a secret wrapped in mystery. From the same Manhattan skyscraper as Ackman's Pershing Square Capital Management, Table handles the personal finances of one client: the boss.
Ackman's set-up might seem unusual in the hedge fund business, where managers stake their fortunes on the funds they oversee for clients.
But a growing number of prominent hedge funders are also quietly cordoning off private enclaves for themselves, often within their big-name firms. Eric Mindich, Dan Och and others have created what are known as single family offices - and not everyone is happy about it. Critics say managers should focus on their hedge funds and, in effect, eat their own cooking.
"I expect hedge fund managers to be 100 per cent invested in their hedge funds," said Karl Scheer, chief investment officer of the US$1.2 billion endowment at the University of Cincinnati. "I prefer that they're singularly focused in order to achieve the best results."
In some ways the managers are just following a basic rule of investing: diversify. But clients and regulators worry these one-member clubs could raise potential conflicts, ranging from who covers costs, to how investments might overlap or collide.