July 30, 2010

Tiger 21's Top 10 Investment Strategies of the Very Wealthy

High-net-worth survey shows wealthy investors understand the need to diversify

Very wealthy investors have the opportunity to invest in a more diverse collection of assets than many other investors. For one thing, the high minimum investment hurdles for certain kinds of investments can make it harder to diversify unless your portfolio is of a certain size. For another, more of the very wealthy may be accredited investors, which qualifies them to invest in certain assets that regular individual investors cannot.

That doesn't always mean that people who very wealthy are much more investment savvy than other individual investors--although some undoubtedly are--the point is that often their expertise is in an industry or a venture that is unrelated to financial services and investing. It's not about intellect, but rather area of experience.

For someone who is not actually on Wall Street, the array and complexity of investments now makes it more challenging than ever for investors of all levels of wealth. There are, however, groups that provide an educational forum for wealthy investors learn about and understand these financial or investment options and allow them to network among their peer group for answers to these and other financial questions.

One such group is Tiger 21, a "peer-to-peer learning group" of 140 members who have assets of $10 billion overall. Tiger 21 offers them the opportunity to gather in small groups of peers and discuss often with an expert or product manufacturer a certain investment or financial topic or area of investing.

Tiger 21 recently polled its membership about the investment managers and assets they favor, and came up with their Top 10 Investment Strategies. While it should be no surprise that equities are high on the list--33% of the Tiger 21 members invest in equities in one way or another, the allocation to equities was not huge, according to a release on July 29 from the group. The majority, 77%, of those equity investors allocated only 15% or less to equities; and nearly one-third of those investors allocate less than 5% to equities.

More than three-quarters, 77%, of those who did allocate to equities did so through some kind of managed vehicle: 26% in mutual funds, 23% in managed accounts, 14% in index funds, 12% in ETFs and 2% in long-only hedge funds. Individual stock investments are the choice of 23% of these investors; however, the most often mentioned stock was Berkshire Hathaway, which, of course, is like a fund investment. (This editor is an investor in Berkshire Hathaway.)

Equities are followed by municipal bonds, as 28% of the Tiger 21 survey participants said they allocate to munis. In fact, more than half of those who invested in munis, 57%, said they make up more than 21% of their portfolio, and another 21% said they invest more than 16% in munis. The manager mentioned most often by the group was the Slevin Wealth Management Group of RBC Wealth Management.

Long-short equity funds are popular as well, with 22% of the participants investing in those funds, which seek to benefit from going long the equities that are most likely to rise as well as selling short those they deem likely to fall in value. Most allocate less than 10% to this strategy, but "at least 13%" of participants allocated 30% or more to long-short equity. Members most frequently mentioned managers Greenlight Capital and Alkeon Capital Management in connection with this strategy.

Tiger 21 members also invest in multi-strategy; and event-driven/distressed; and private equity/debt funds, with 19% of members allocating to one of those three

strategies. Elliott Associates and Brigade were the popular managers for multi-strategy funds, while Hildene Capital, Paulson & Co., Sandalwood Securities are preferred event-driven/distressed fund managers. Golub Capital and Bain Capital are mentioned as favored private equity/debt fund managers.

Real estate and master limited partnerships (MLPs) are darlings of a smaller group of the participants, at 14% each. Participants typically nibble at these categories, with 90% of those investing in MLPs allocating less than 10% to the vehicle, and 89% of those investing in real estate allocating 15% or less to that asset in their investments--although Tiger 21 notes in its announcement that: "In fact, several Tiger 21 members made their fortune in the property market and maintain sizeable holdings in this sector." As for MLPs, Chickasaw Capital Management and Neuberger Berman's Income Plus Portfolio are favored managers.

Global macro funds were the favorite choice for 13% of the participants--but again, most dedicating smaller portfolio percentages to this strategy. Of those who invest in this strategy, 89% allocate less than 15% to the strategy. But 11% of the participants who use this strategy allocate 21% to 30% of the portfolio to it. the most frequently cited manager here was Balestra Capital.

And finally, gold captures the fancy of 6% of the Tiger 21 survey participants. One-quarter invest less than 5% in gold, but half of the gold buyers allocated 11% to 15% to the asset and the other 25% invest 16% to 20% in the metal. Participants are almost evenly divided between owing gold ETFs and the physical commodity.

"The survey shows the diverse, yet sophisticated nature of Tiger 21 members' investment portfolios. In making their decisions, many of our members have come to rely on one another for input on asset allocation and investments whether via our trademarked Portfolio Defense process or through individual discussions with their group members," said Michael Sonnenfeldt, founder and chairman of Tiger 21.

Comments? Please send them to kmcbride@wealthmanagerweb.com. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.

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