ULTRA-RICH INCREASING EXPOSURE TO PRIVATE EQUITY
By Shasha Dai
Ultra-rich investors are stockpiling cash, and to offset the drag on their portfolio they’re increasing allocations to private equity, according to the most recent quarterly survey of members by Tiger 21, a network of entrepreneurs, fund managers and corporate executives.
“Members are offsetting the cost of holding cash with growth driven by private equity,” thereby creating a “barbell hedge,” said Tiger Founder and Chairman Michael W. Sonnenfeldt.
The Septembersurvey of Tiger’s more than 290 membersshows that 46% of respondents plan to increase allocation to cash during the fourth quarter, while 44% plan to increase allocation to private equity. Those two asset classes are the only ones where more respondents plan to increase allocations rather than decrease or keep it unchanged from third-quarter levels.
The increased importance of cash to Tiger members is not only driven by the need to have more liquidity should the market tank again as it did in 2008, said Mr. Sonnenfeldt. The members also realized the need to have more dry powder on hand to take advantage of great investment opportunities, he added.
Given many members’ background as entrepreneurs and executives, investing in companies directly, sometimes by teaming up with private equity firms, allows Tiger members to bring to bear their operational expertise, said Mr. Sonnenfeldt.
On an annual basis,Tiger members’ allocation to private equity reached 21% in 2013, the highest since 2007.
The increased allocations from high net worth individuals will likely come as welcome news to private equity firms which have beenexploring a variety of methods to access those holdings. Based on an analysis of its internal data, placement agent and secondaries adviser Triago recently reported that high net worth individuals accounted for roughly 10% of the fundraising market share in 2014, up from 6% in 2008.
-Hillary Canada contributed to this post.
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