May 1, 2012

Cash Loses, Real Estate Wins and Other Q1 Plays by Tiger 21

Worst may be past, but ultrawealthy members feel ‘in no way in the clear’

Michael Sonnenfeldt, the founder and chairman of Tiger 21. Michael Sonnenfeldt, the founder and chairman of Tiger 21.

With concerns about the global economy much in mind, Tiger 21 members continued to pursue a cautious approach to investing during the first quarter, according to the group’s latest asset allocation report.

Tiger 21 comprises some 200 investors across North America wealthy enough to pay the hefty $30,000 annual dues. The group's members have investable assets totaling more than $18 billion.

 “While many Tiger 21 members might feel the worst of the economic troubles are behind us, general consensus is that we are in no way in the clear,” Michael Sonnenfeldt, the group’s founder and chairman, said in a statement.

Members “are making very deliberate moves with their portfolio, only after much research and discussion,” he said, and they remain committed to long-term wealth accumulation and preservation.

For the new report, Tiger 21 collected data measuring aggregate asset allocation exposures based upon members’ annual Portfolio Defense presentations, according to the statement. Quarterly tracking of these trends is now in its fifth year.

Although asset allocation changes in specific categories from quarter to quarter have been muted, asset allocation changes over the previous year show a definite shift in positioning. Among some of the report's highlights:

Members' cash allocation is down 12% from last quarter but is still historically high.1. Cash

Members’ cash allocation was reduced by two percentage points to 12% from the fourth quarter of 2011 to the first quarter of 2012, and is now five percentage points off a high of 17% in the first quarter of 2011. This could signal a cautious optimism in the economy, but members’ allocation to cash is still above what most financial advisors generally recommend.

Tiger 21 members like to keep at least a three or four year reserve in cash and cash equivalents, the statement said.

2. Fixed Income

Fixed income is down five percentage points to 15% from the first quarter of 2011, and it is down eight percentage points from the fourth quarter of 2009. The low yields on the bond market and persistent trouble in the sovereign debt market appear to be contributing factors.

3. Public Equity

Public equity allocation decreased by two percentage points to 22% from first quarter 2011 to first quarter 2012 as members contained their enthusiasm despite generally positive performance in the markets over the past year. The statement noted that this percentage does not differentiate between direct investing in businesses and funds.  

It said many members do not see a correlation between the performance of the stock market and what has (or has not) been done to fix the economy. Members’ public equity allocation remains far off its more than 30% allocation prior to 2009.

Real estate showed the biggest percentage-point rise in allocation over the past year. (Photo: AP) 4. Private Equity

Members increased their allocation to private equity by four percentage points from the first quarter of 2011 to the first quarter of 2012 to 14%, perhaps indicating they are finding more attractive opportunities in the private markets than in public ones. The statement pointed out that many members are highly experienced in the private equity sector and believe that over the long term it represents some of the best opportunities to preserve and build capital.

5. Real Estate

Real estate saw the largest increase in allocation over the past year, five percentage points. This increase started in the second quarter of 2011 and reached 24% by the fourth quarter. In the current low-interest-rate environment, members like real estate because it offers additional tax advantages, the statement said.

It said members also may favor this allocation because those who missed some of the upside in the public equity markets looked to real estate (especially distressed opportunities) to make up some lost ground. Similar to private equity, many members have created their wealth in real estate and can make astute evaluations of these investments, according to the statement.

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Read George Soros’ 8 Bold Predictions From the ‘Tiger Den’ at AdvisorOne.

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