WHAT the wealthy do with their money is a closely guarded secret, but investors can follow in their footsteps by buying into family-owned funds.

That phenomenon is set to get bigger: Iveagh, the office created to manage the Guinness family wealth, is poised to launch its first retail fund, the Sunday Times can reveal.

On the basis of recent performance, consumers could do well from piggybacking on the investments of the super-rich.

The Earl of Iveagh and the Guinness family have amassed a fortune of £830m from their brewing business, ranked 92 on the Sunday Times Rich List.

Iveagh started managing the family’s liquid wealth in 2006. Since then, returns have totalled 9.64%, against a fall of 8.67% on the FTSE All-Share index.

In the year to the end of July, the value of their assets has slipped just 0.88%, largely due to a shift from equities: managers cut equity exposure from more than 50% to below 10% in the final quarter of last year.

The fund will mirror the investment strategies used to manage the Guinness fortune.

Iveagh can select managers who can “short” securities – bets that make money when the price drops – and are taking a long-short equity strategy with about 28% of the Guinness family’s portfolio, against a usual level of under 20%.

That strategy involves buying equities that are expected to increase and shorting those expected to drop. In the Asian markets Iveagh’s managers have been buying technology and shorting financials.

“In this way, we can manage risk and growth in good and bad market conditions,” said John Ricciardi, lead manager alongside Cambiz Alikhani.

Moves to take advantage of the rally in the American dollar – it has rallied 7% against sterling in the past month or so – have also boosted performance.

In an exclusive interview, Lord Iveagh, great, great, great, great, great grandson of the Guinness family member who floated the business, said: “We’ve been delighted with the performance. The tactical asset management model has been extremely successful in these turbulent times.”

Existing family-owned funds have also proved resilient, largely because of their conservative approach: many aim to preserve wealth, rather than chase returns that shoot the lights out.

RIT Capital Partners, formed 20 years ago to help the Rothschild finance dynasty manage its investments – chairman Lord Rothschild still owns about 17% – has seen its share price rise 0.2% in the past year. It is up 38.7% over three years and 151.1% over five.

The trust has turned £1,000 into £2,548.25, including dividends, over five years compared with a nominal return of £1,548 on the All-Share.

It has sold equities in the past 18 months, and used hedges to invest in currencies that have risen, such as the Norwegian kroner and Swiss franc, while moving out of sterling.

The trust also has exposure to unquoted investments, such as the Economist weekly and private equity, as well as hedge funds, bonds and property.

Matthew Chambers, at independent broker Bestinvest, said: “This is a truly diversified portfolio. The fund has made some interesting new investments recently – in clean technology, Brazilian farmland and Japanese property. Its long-term track record is extraordinary.”

The stellar performance, however, means that it is trading at a premium to underlying net assets: you currently have to pay 1109p per share, 4.7% higher than NAV at 1058.8p.

Caledonia, the £1.2 billion public face of the Cayzer family – whose fortune was founded in 1878 when a Scottish schoolmaster’s son set up the Clan Line steamship company, destined to become one of the world’s largest cargo fleets – has also beaten the market.

The fund, 46%-owned by the Cayzers, is down just 4.9% in the past year. It has returned 25.9% over three years and 129.3% over five.

Its largest holdings include fellow investment trust British Empire Securities, merchant bank Close Brothers and engineer TGE Marine.

Chief executive Tim Ingram believes performance has bene-fitted from having a member of the investment team on the boards of about 90% of the companies the fund invests in.

Family money is also heavily invested in two other investment trusts, Personal Assets Trust and Hansa Trust.

Hansa, 51.2% owned by the Salomon family – who sold investment bank Rea Brothers to Close in 1999 – is down 23.8% in 12 months, but is up three times more than the All-Share over five years.

Personal Assets Trust, more than 90% owned by managing director Ian Rushbrook and family, is down 2% over one year, and up 33.3% over five.

The new Iveagh Wealth fund, which will go live on September 1, will target annual returns of 9.5%. It hopes to attract funds of £50-100m in the fourth quarter of this year.

James Higgins, at independent financial adviser Chamberlain de Broe, plans to recommend the fund to clients.

“Iveagh’s predictive modeling has been so consistent over very difficult years,” he said.

Although its managers aim to limit volatility to 10-12%, they plan to move into riskier asset classes in the latter part of this year, increasing exposure to the stock market, private equity and credit markets.

The minimum investment in the Dublin-domiciled open-ended investment company is £50,000. Charges are an annual 1.5% with a 10% performance fee on returns above three-month Libor.

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