Hedge Funds Transform Into Family Offices

Hedge Funds Transform Into Family Offices

The Dodd–Frank Wall Street Reform and Consumer Protection Act, signed into federal law by President Obama on July 21, 2010, was passed as a response to the late-2000s recession. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation’s financial services industry.  

To create an exemption for family offices, the Private Investor Coalition, which lobbied Congress while Dodd-Frank was being formulated, argued that family offices don’t solicit or invest money from outside investors and therefore shouldn’t be subject to rules aimed at protecting everyday investors.

As a result of this exemption from regulation under the Advisers Act, requirements for disclosure and investor protections are less strict for family offices making them very attractive to hedge funders, who are increasingly transforming their hedge funds into family offices to take advantage of this regulatory incentive.

So far hedge funders who have taken this route have included George Soros – who launched his family office with $24 billion – Carl Icahn and Stanley Druckenmiller. It is thought that SAC, run by Steve Cohen, could follow suit.

Another development has seen families and large investors investing through family foundations. The combination of family offices – there are now over 1,000 in the U.S. according to the Wharton Family Office Alliance – and family foundations is a growing force in capital markets.

Source: CNBC

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