MARKET CONDITIONS SPUR INVESTMENT IN PRIVATE EQUITY
High-Net-Worth Group’s Members Report 70 Percent of Portfolios Allocated to Real Estate, Private Equity and Public Equity
New York, NY ‚Äì May 4, 2016 ‚Äì TIGER 21, the premier peer-to-peer learning network for high-net-worth investors, reports that investment in private equity continues its upward trend, increasing by one percent to 23 percent in the first quarter of 2016, the highest rate ever recorded for the group, which now has more than 400 Members who manage in excess of $40 billion in personal investible assets. Members’ traditional “risk equity” allocation is now 70 percent when private equity is added to public equity and real estate allocations, and an even higher 78 percent when allocations to hedge funds are added in.
“While some of our Members hedge fund allocations are ‚Äòmarket neutral,’ by any standard the 70 percent for the three core equity holdings, and the 78 percent when hedge fund allocations are added in are at or near historic highs relative to prior levels ever recorded,” commented Michael Sonnenfeldt, Founder and Chairman of TIGER 21.
The broader “risk equity” allocations (including hedge funds) had peaked at 77 percent in 2007 and fallen to a low of 60 percent in 2009, but have now marched back to a combined 78 percent over the intervening period. This equity exposure roughly compares to historic norms for institutions and “balanced portfolios” of equity risk closer to 60 percent. Within the risk equity allocation, the biggest shift over the last decade has been the growth in private equity from a low of 10 percent to today’s 23 percent, and perhaps even more noteworthy is that private equity at 23 percent has topped the public equity allocation of 22 percent for the first time. Cash allocations remain at 10 percent, an amount which remains lower than historic cash allocations in more stressful times. Fixed income is at 10 percent and remains at or near the lows recorded over the last decade.
“The high private equity allocation is a reflection of the unique composition of our Members, where the overwhelming majority are first generation creators of significant wealth (usually through amazing entrepreneurial success) and therefore are better equipped to manage risk than many other types of investors. Our Members’ unique skill sets and experience, as well as their tolerance for risk, allow them to participate more aggressively in the private equity markets,” continued Mr. Sonnenfeldt. “In the past decade, we have seen Members double their investment allocations to private equity. It isn’t surprising that when challenged by a negative real interest rate environment where you have to take risk of one form or another just to ‚Äòkeep up,’ TIGER 21 Members would rely heavily on what they are most familiar with ‚Äì private equity and real estate. We are seeing Members apply the same types of insights and strategies which allowed them to build great businesses and significant wealth in the first place.”
“This interest rate environment presents a unique set of challenges. Higher allocations to private equity and real estate are not necessarily prescriptions for passive investors, but rather a reflection of how extraordinary business men and women who have already created great wealth by their own efforts, often from scratch, are adjusting (often following a liquidation event when their business was sold) to the current marketplace conditions,” stated Mr. Sonnenfeldt.
The findings of this report reflect the unique attributes related to capacity and willingness to manage and shoulder risk. Each of our Members’ participation in one of the 32 TIGER 21 Groups across North America gives them access to a personal “board of directors” they could not duplicate on their own. All of the Members of this personal board of directors are peers and have no agenda other than mutual support – including helping to identify risks and opportunities that might not be obvious or easy to understand. Many Members join TIGER 21 after a liquidity event, such as the sale of their company. Once that event happens, Members must shift their focus to preserving their wealth. Standard approaches all too often rely on an overdependence on publicly-traded securities, which have had suboptimal returns over the last decade. That approach often deprives a Member of the unique advantages their own specialized experience and instincts can add.
Mr. Sonnenfeldt continued, “Preserving wealth in today’s environment is harder than ever. When real interest rates are negative and investors are reliant on their portfolio of investments to fund their living expenses, while trying to maintain an inflation adjusted level of capital, shedding all risk is not feasible, and quite frankly, it’s not in the nature of many of our Members. In this environment, the only way to maintain real value and not go backwards is to take on risk.”
The TIGER 21 Asset Allocation Report measures the aggregate asset allocation exposures of TIGER 21 Members based upon their Portfolio Defense presentations. This data is collected over the course of the year and reports are issued on a quarterly basis. To ensure a more meaningful asset allocation representation, the collective data is represented in year-over-year format as stated at the end of each quarter.
About TIGER 21
TIGER 21 (The Investment Group for Enhanced Results in the 21st Century) is North America’s premier peer-to-peer learning network for high-net-worth investors. TIGER 21’s Members are entrepreneurs, investment partners and top executives. TIGER 21 focuses on improving investment acumen as well as exploring common issues of wealth preservation, estate planning and family dynamics. Founded in 1999, TIGER 21 is headquartered in New York City and has groups in Atlanta, Austin, Boston, Chicago, Dallas, Denver, Houston, Los Angeles, Miami, New York, Newport Beach, CA, Palm Beach, San Diego, San Francisco, San Juan, PR, Seattle, Tysons Corner, VA, and Washington, DC as well as Canadian groups in Calgary, Montreal, Toronto, and Vancouver. TIGER 21 will be opening in London later this year. More information can be found at www.TIGER21.com.
KCSA Strategic Communications