There continues to be a trend of hedge fund businesses changing to family offices and no longer managing third-party money.

A New York-headquartered hedge fund run by an alumni of George Soros' investments business is reportedly changing to become a family office, following the very move taken seven years ago by Soros as well as other prominent industry figures.

Randall Yuen, founder of Jafra Capital Management, told investors the firm would close its hedge funds at the end of September, according to a report by Institutional Investor and other media. At that time, Jafra will convert to a family office, the reports said. The business was set up only about two years ago.

“This decision was made after considerable reflection on my part,” Yuen reportedly said in a Sept 20 letter to clients.

Family Wealth Report has contacted Jafra Capital Management for comment and may update in due course. 

George Soros turned his Quantum hedge fund business into a family office in 2011 to avoid the costs of a new regulatory regime on firms taking in third-party money; a number of other hedge fund businesses, such as Steven Cohen’s SAC, have taken the same course, although not always for the same reasons. In another case (2016) Scott Bommer, founder of SAB Capital Management, returned client money from his hedge fund after 17 years so that he can focus on managing his own wealth. 

There are numerous reasons why hedge fund principals might opt for a family office structure. They may simply feel it is time to focus on different things, enabling them to pursue philanthropic ambitions and invest more broadly than a hedge fund might, for example.

This publication spoke in August 2016 to Bill Woodson, head of the North America family office group at Citi Private Bank, about this trend (see here). 

The trend also suggests that some hedge funds are battling with a still-challenging investment climate in certain cases, and preferring to avoid some of the regulatory requirements associated with managing third-party money. In the first six months of this year, the HFRI Fund Weighted Composite Index - a widely-used measure of hedge fund returns - eked out a gain of 0.8 per cent.