Finding and targeting the right investors
5 Types of Hedge Fund Investors and How They Allocate
5 Types of Hedge Fund Investors
Hedge fund and other fund managers who want to know which investor types they may approach and how each one tends to decide.
In their words
"Family offices typically have more barriers in place before they make an allocation. They're typically going to conduct more due diligence, have more strenuous requirements and might negotiate harder on fees."
"Either way, you want to get on the good list of these institutional investment consultants, and they can be a great ally of yours if you win one over on working with you long term."
"The fund to fund is typically trying to give somebody a diversified allocation to an industry, an area or a type of asset class."
The short version
Richard C. Wilson names five types of investors that commonly allocate into hedge funds. They are high net worth individuals, family offices, endowment funds, pension funds and fund to fund vehicles. He recorded the talk in Houston, Texas, the day before a Family Office Club event. The first group, high net worth individuals, are angel investor types worth roughly $1 to $10 million, and they often do the least due diligence.
Family offices usually bring more barriers, deeper due diligence and tougher talks on fees. Endowments and pensions often decide by committee and may rely on an institutional investment consultant. Fund to fund investors spread money across several funds in one area, such as venture capital. The talk is aimed at fund managers who want to understand who they are approaching and how each group tends to decide.
From the source
- High net worth hedge fund investors are described as people worth about $1 to $10 million, sometimes a little more.
- A family office may not want to exceed 10 or 15% of a fund's total LP base.
- Richard C. Wilson notes there are 20,000 family offices or more globally, with a full spectrum of risk preferences.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: 5 Types of Hedge Fund Investors. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around GP stake arrangements, fee negotiation terms and investor eligibility rules. Do not use AI to write your own legal agreements.
What to take from this talk
- High net worth investors move fastest. These angel investor types are often worth $1 to $10 million. They tend to do the least due diligence and invest on referral and personal relationships. Sales cycles can be the shortest.
- Family offices set a higher bar. They typically add more barriers, conduct more due diligence and may negotiate harder on fees. Some may raise the idea of a stake in the management company if they invest early, which is a structuring question many sponsors review with a securities attorney.
- Size and stage limits apply. A family office may not want to be more than 10 or 15% of the total LP base. A hedge fund may need $30 to $50 million in assets, and sometimes $100 million plus, before a family office invests.
- Committees and consultants decide. Endowments and pension funds often involve a committee and an institutional investment consultant. The consultant may be discretionary and make the decisions, or non-discretionary and only give opinions.
- Fund to fund investors diversify. They spread money across several funds in one area, such as seven or nine VC funds. People use them to reach funds with high minimums or funds closed to new investors, or to diversify within a space.
Related questions
- How do I close a funding round?I close a funding round by focusing on investors who fit the opportunity and moving each interested prospect through clear, consistent follow-up.
- What documents do investors request during due diligence?Prepare a clear, organized package covering your operations, investments, compensation, team, and track record.
- How do I raise capital for my business?I raise capital by building a repeatable system for attracting the right investors, establishing credibility, and developing relationships before asking for money.
Questions about this video
What are the five types of hedge fund investors?
Richard C. Wilson lists high net worth individuals, family offices, endowment funds, pension funds and fund to fund vehicles.
Why do endowments and pensions take longer to decide?
They often involve a committee, so multiple people need to buy in. They may also work with an institutional investment consultant who either makes the decisions or gives opinions.
How large must a hedge fund be for a family office to invest?
The talk says a hedge fund may need to reach $30 to $50 million in assets under management, and sometimes $100 million plus. It depends on the family office.
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