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3 Investment Trends of Ultra-Wealthy

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The leading investing trends among ultra-affluent investors are injecting money in global markets, directly in private companies and in real assets, according to the Institute for Private Investors, which provides education and networking for investors and families with at least $30 million.

Mindy Rosenthal, IPI“The portfolio allocation and investment trends reported by ultra-affluent investors often lead the broader market. For example, IPI families began investing in hedge funds in the late 1990s, anticipating the wider move into hedge funds,” Mindy Rosenthal (left), IPI executive director, said in a statement. “We currently see three trends which are becoming increasingly important for ultra-high net worth investors.”

Investors have already shown they’re hungry for global investments. In 2011, families associated with IPI had almost one-third of their portfolio invested outside their domestic market. Almost half of families say they plan on increasing allocations to global equities this year.

“Investors are recognizing two things,” Rosenthal told AdvisorOne on Wednesday. “First, they recognize that domestic markets alone won’t achieve the returns they need.” Investors are also recognizing that the markets are increasingly connected, Rosenthal noted. “What happens in Greece will impact Europe, which will impact the United States,” she says. “It’s important to have global exposure.”

It’s important to note, she says, that “global does not mean Europe. It’s emerging and frontier markets, too.”

Commercial and residential real estate, gold, land and artwork are popular tangible assets among ultra-wealthy investors, IPI found.

“These are very long-term holdings,” Rosenthal said of hard assets. “Advisors need to help their clients understand what they’re trying to achieve, what are the risks.” Whether they’re interested in real estate, timber or private companies, wealthy families also need to consider how those assets fit with their risk profile and their family dynamic.

“I could be tolerant of risk,” Rosenthal suggests, “but it needs to be wed with what I’m trying to achieve.”

More than half say they plan to increase direct investments in private companies in the next year, but the overall trend began in 2008, Rosenthal says. “We see it strongly with younger, next-generation investors, who may be in their 40s all the way down to their 20s.” Those younger investors, Rosenthal notes, have a much different experience of the capital markets from their parents’. Some families, she adds, can trace their wealth back to the original purchase of a business. “These investors have a natural inclination to view a business as a wealth driver.”

As for which sectors they’re drawn to, Rosenthal says that it just depends on where wealthy investors’ experience lies, rather than “throwing out a net.” If wealthy investors are planning on co-investing, they also look for partners with good experience. “They’re looking for people who bring more than just money,” Rosenthal says.

“We’re seeing definite changes in the way private investors approach portfolios, but this is a continuation of things we started to see in 2008. This isn’t a wholesale movement,” Rosenthal concluded. Furthermore, “it’s not all their assets,” she points out. “Outside their core portfolio, they are looking at other investments and looking at things differently.”


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