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Wealthy’s Top Investing Strategies, Worries

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Wealthy private families are increasing their international investing, the Institute for Private Investors (IPI) reported Wednesday, citing responses to an annual survey of its ultra high-net-worth members. These families also said they were “concerned about inflation,” with nearly one-quarter managing currencies or hedging currency risk.

IPI’s chief executive Charlotte Beyer said the findings were especially noteworthy because ultra-affluent investors often lead the market with their allocation and investment strategies. In the early 1990s, for example, IPI members led the move into hedge funds, she said.

Alternative investments made up slightly less than half of investor portfolios in 2010, the survey found, while investors pulled out of municipals.

IPI’s Family Performance Tracking survey, now in its 12th year, highlights the expectations, returns and asset allocations of its member families. IPI, which provides educational and networking resources to its national membership of 1,100 ultra high-net-worth investors, is an independent subsidiaryof Campden Media.

Enthusiasm for Global Markets

IPI families have reaped the benefits of a more global portfolio since 2009. The 2010 survey revealed that they are currently investing 28% of their portfolio outside their domestic market. In addition:

  • 20% are investing half or more of their overall portfolio outside of the domestic market
  • 67% are investing in international equities only
  • 57% are also investing in hedge funds
  • 49% are investing in private equity

Hedging Currency Risk

IPI families continue to be concerned with “the potential of inflation” and “the devaluation of the U.S. dollar.”  Twenty-three percent said they managed currencies or hedged currency risk. Of these:

  • 53% are using a currency overlay strategy or manager
  • 24% are using derivatives
  • 18% are using ETFs

Asset Allocation Holds Steady

Aside from an increase in global long-only equity allocation (from 11% in 2009 to 14% in 2010), the average asset allocation of investor portfolios remained similar to the average allocation reported last year.

  • Alternatives comprised 42% of the investor portfolio, with hedge funds remaining at 19%, down from a high of 24% in 2006
  • Fixed income (cash, taxable bonds and municipals) fell slightly from 27% to 25%, with much of the decrease ascribed to investors pulling out of municipals (down four percentage points this year).

Annual Returns Moderate

IPI members realized a healthy 11.3% return for 2010. Although shy of the S&P’s 15% return, members’ 10-year average return of 6% beat the S&P’s 3.6%, IPI said.


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