The wealthiest Americans were less enamored with hedge funds in 2006; among households with a net worth of $25 million or more (not including a primary residence), the number of those with hedge funds in their portfolio plummeted 29 percent, according to the report, What's in Your Portfolio? released by Spectrem Group on January 18.

In 2005, 38 percent of those households held hedge funds; in 2006, that figure dipped to 27 percent.

Hedge fund popularity also fell among ultrahigh-net-worth households, those with a net worth of at least $5 million. Among those households, 14 percent included hedge funds in their portfolio in 2006, down from 17 percent the previous year.

"Hedge fund investing appears to have lost some of its luster for the very richest Americans," said Catherine S. McBreen, managing director of Spectrem Group. "A nearly one-third decline in the percentage of those households investing in hedge funds suggests the difficulties of 2006 have made their mark. This trend impacted the overall ultrahigh-net-worth market, but no segment so significantly as the very wealthiest households. It will be interesting to see if the industry can restore its popularity among this important segment as 2007 progresses."

The study found that the 2006 mean balance invested in hedge funds was $1.6 million among households in the $25 million-plus category. Ultrahigh-net-worth households combined had a mean hedge fund balance of $739,000. 

 
Percentage of Wealthy Households Owning Hedge Funds

Net worth (residence excluded)           2005           2006

$25 million-plus                                   38%           27%

$10 million to $25 million                     19%            18%

$5 million to $10 million                       6%              8%

$5 million-plus                                     17%            14%