Where the Rich Are Investing Now

PENTAWEDNESDAY, JANUARY 30, 2013 Where the Rich are Investing NowMore than ever, it seems, the rich are following the dictum of mutual-fund legend Peter Lynch: “Invest in whatyou know.” They are increasingly using the industry insights they gleaned while building businesses to makemajor private-equity investments, according to a report from TIGER 21, a network of ultra-high-net-worthindividuals who compare notes on markets and investments.The 210-member group’s collective allocation to private equity stood at 19% at the end of 2012, up from 13%a year earlier. It was the highest level in the five years that TIGER 21 has tracked such figures.Michael Sonnenfeldt, the group’s founder, calls it a “dramatic shift.” In the past, Sonnenfeldt says, an economicrecovery would have led to more investing in publicly traded stocks than in private equity. But this time,allocations to stocks have grown more modestly-up just three percentage points during 2012, to 24% of theaverage portfolio. That’s much lower than prerecession levels, a development Sonnenfeldt attributes to jittersabout the stock and bond markets. Private equity investments are something that his members “can touchand see value in a little more directly.”The companies that TIGER 21 members invest in span the many sectors where they built their fortunes.For example, a former head of a printing business might invest in a digital-printer maker, or a veteran of thelighting industry might invest in a solar panel manufacturer. In instances like this, Sonnenfeldt says, membersare not only investing capital but also their own “capacity to make a difference,” through industry expertiseand a network of contacts. Their knowledge of a particular industry allows them “some ability to lever thecompany’s assets in a better way.”Lately Sonnenfeldt sees members getting into venture-capital deals more often than they did five or eightyears ago. He guesses a quarter to a half of members’ private equity deals are venture, while the rest arebuyouts. Venture, when it’s successful, tends to have higher returns, than buyouts, he says, albeit with higherrisk. But the business environment in the last two years, he says, has stabilized to the point where people aremore willing to make those kinds of investments.