Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Portfolio > Alternative Investments > Hedge Funds

Survey Probes Ultra-Affluent Outlook

Your article was successfully shared with the contacts you provided.

NEW YORK (–The ultra affluent–those with assets of US$25 million or more– increasingly are using more sophisticated investment strategies, but overall they remain skeptical about hedge funds’ lack of transparency, according to a new survey conducted by Citigroup Inc.’s Private Bank unit and the international management consulting firm McKinsey & Co.

Partially to combat their skepticism, the ultra affluent are seeking the leverage of family office-type services–either by starting their own offices or by hiring family office service providers–to help them access multiple managers and conduct due diligence, things they don’t have the time or skills to manage personally, according to the survey.

Citing double-digit returns among some aggressive hedge funds during periods of low equity-market returns in 2000, 2001 and 2002, and again through much of 2004, affluent investors who took part in the survey said they suddenly found hedge funds more attractive and moved to increase their allocations.

“Despite this, these investors expressed a clear desire to better understand how hedge funds achieve their returns,” according to the survey. “So while the ultra affluent appear willing to increase their allocations to hedge funds, they also want greater disclosure from alternative asset managers as to performance, risks, fees and fund pricing.”

The survey found that growing access to and interest in hedge funds, funds of funds and other alternative investments such as private equity corresponded to expanded marketing of these products by wealth advisers. Such advisers can no longer set themselves apart from the competition merely by offering such products, and ultra-affluent investors have responded by increasing the number of relationships with traditional and non-traditional advisors, according to the survey.

Along with more choices, however, the improved access to alternatives posed problems. A number of survey participants admitted to chasing performance and to not properly diversifying their portfolios–the same problems other, less affluent investors face.

As a result, growing numbers of the ultra affluent are seeking objective investment advice. To find it, they are setting up their own family offices or seeking the services of firms that serve family offices. “Ultra-affluent individuals find that having a family office, or access to these services, helps them access multiple product providers without requiring them to spend time personally managing these relationships,” according to the survey report.

The survey also found regional differences among the ultra affluent in their approaches to wealth management. North Americans expressed the strongest desire for alternatives such as hedge funds.

Europeans tended to demand tax-efficient investment products, vehicles and tax advisory services, according to the survey. They also expressed interest in real assets such as real estate, ships, privately held businesses and art works.

Latin Americans valued confidentiality and privacy and tended to emphasize personal relationships with bankers. For those reasons, they generally had fewer relationships with financial institutions.

Middle Eastern ultra-affluent investors favored real estate and principal-protected investments and by and large expressed less familiarity and interest in hedge funds.

Asian investors favored cash, real assets and privately held businesses as investments, particularly those within Asia.

For the survey, Citigroup and McKinsey interviewed 120 ultra-affluent individuals around the world. All had a net worth of at least US$25 million, and 60% had a net worth of more than US$100 million.

[email protected]

Contact Bob Keane with questions or comments at: [email protected].


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.