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Portfolio > Alternative Investments > Real Estate

Ultra-Wealthy Investors Boost Real Estate Holdings: Tiger 21

By Michael S. Fischer

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High-net-worth members of the Tiger 21 peer-to-peer learning network largely focused their wealth in private equity, real estate and public equities in the second quarter, according to the organization’s latest asset allocation report.

During the same period, members’ hedge fund allocations hit a new low.

The quarterly report measures the aggregate asset allocation of Tiger 21’s membership base on a trailing 12-month basis. The organization said this methodology tends to reveal substantive trends more clearly and is less affected by short-term distortions caused by growing membership.

The group comprises more than 500 investors in North America and London who collectively manage some $51 billion in personal investible assets.

Real Estate’s Ascent

Real estate allocations increased to 33%, up one percentage point from the first quarter and seven points higher than the same period in 2016.

“Many of our members created their wealth in the real estate industry, and subsequently continue to maintain significant holdings,” Tiger 21’s chairman and founder Michael Sonnenfeldt said in a statement.

“Various other factors — including historically low interest rates, public equity markets priced to perfection, and the anticipation that regulatory rollback is imminent — have significantly enhanced appetite for real estate investments.”

In contrast, a large segment of less affluent investors have failed to adjust their portfolios as the investment landscape has shifted, according to a recent study.

Tiger 21 investors’ private equity allocation rose by one point in the second quarter to 21%, while their public equity allocations fell from 21% in the first quarter to 20% — still a sizeable percentage of their overall assets, but the lowest reading seen since the 19% recorded in the second quarter of 2010.

“While our members clearly still embrace public equities as part of a diversified portfolio, it is no coincidence that private equity currently has the edge,” Sonnenfeldt said.

“As long-term, strategic investors with deep expertise in various industries, private equity offers them the opportunity to take an active role while weathering the short-term volatility associated with public equities.”

A separate report said private equity fundraising was exceedingly robust in the second quarter.

Members’ allocations to other asset classes did not change from the first quarter:

  • Cash and cash equivalents, 11%
  • Fixed income, 9%
  • Commodities, 1%
  • Currencies, 0%

Those Hedge Funds

Members’ exposure to hedge funds has been on a steady decline in recent years, the report noted, but at 4% in the second quarter, they fell to their lowest level since Tiger 21 began collecting data in 2007.

The previous low came at the height of the recession, 5% in the fourth quarter of 2008.

“Our members, through their various successful endeavors, have proven themselves to be sophisticated investors who are highly attuned to market dynamics,” Sonnenfeldt said.

During group meetings, many investors have complained about fees, lock-up periods and disappointing returns in the current low-interest-rate environment, he said. “Given the strong correlation between monetary easing and poor hedge fund performance, it comes as little surprise that our members are seeking returns elsewhere.”

Sonnenfeldt said standout hedge funds that were delivering noteworthy gains represented the exception rather than the rule. “We do, however, believe that the industry has the potential to rebound in the event of a future rate hike.”

Credit Suisse recently reported that more than three-quarters of institutional investors in a recent survey were likely or very likely to allocate to hedge funds in the second half of this year.

The same survey also found that institutional investors were seeing “real progress in the ongoing realignment of interests between hedge funds and their limited partners, with more favorable fee structures and terms being offered by managers.”

— Check out The Hunt for Yield: Tackling Misconceptions of PE Real Estate on ThinkAdvisor.

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