Ultra-Wealthy TIGER 21 Investors Boost PE to Record Levels

May 6, 2016

By Danielle Verbrigghe 

Ultra-wealthy investors in the TIGER 21 network have continued to ramp up their allocations to private equity to historically high levels.

Average allocations to private equity rose to 23% in the first quarter of 2016, a historic high. That’s a significant climb from the 9% average allocation TIGER 21 members had to private equity in 2010. In fact, for the first time, private equity now represents a bigger slice of member portfolios than public equity. 

A lot of the money investors have put into private equity and other risk-equity asset classes has come from fixed income and cash, says Barbara Goodstein, CEO of TIGER 21. Fixed income has fallen to 10% in the first quarter from about 23% in 2009, Goodstein says. Cash holdings are also down from then, when they represented about 13% of investors’ portfolios. 

“People [are] wanting to make their money work harder for them,” Goodstein says. “In this very low interest rate environment, they have to be looking for opportunities that have significant upside.” 

But private allocations might not have much further to climb. 

“I think this is probably the top,” Goodstein says. “People will continue to want to keep holding some level of cash and some level of fixed income. This is probably where the allocations are going to stay.” 

The survey, which covers 400 ultra-high-net-worth TIGER 21 members who manage more than $40 billion in collective assets, found that overall equity allocations, including private equity, public equity, real estate and hedge funds, have reached 78%, according to TIGER 21. That’s above a previous pre-crisis peak. Equity allocations had previously reached 77% in 2007, before falling to a low of 60% in 2009. 

Not all equity asset classes have fared as well as private equity, however. Real estate allocations have fallen to represent 25% of the average TIGER 21 member portfolio, down from a high of 30% in 2015, Goodstein says. Hedge funds are holding their own, standing at 8% of the portfolio. 

A separate survey from iCapital Network last year showed that single family offices also expressed a penchant for private equity, as reported by FundFire Alts

More than 90% of single family offices in that survey said they allocate 10% or more of their portfolios into private equity funds or direct investments. While most of them, almost 71%, said they put between 10% and 20% of their total portfolio into private equity, a segment of respondents allocated far more. More than 8% said they put more than half of client assets in private equity investments.

To meet demand from registered investment advisors (RIAs) working with ultra-wealthy clients for access to private equity, Dynasty Financial Partners earlier this year launched an alternative investment platform in partnership with iCapital. 

“There’s no question we get more and more requests for private equity than we used to,” says Michael Moriarty, head of Dynasty Financial Partners’ investment platforms. 

While the platform includes research-covered lists of private equity funds, along with hedge funds, RIAs in the Dynasty network, have also been approaching the research team with requests to add certain managers and funds that they have sourced independently, Moriarty says. The firm is currently working on adding four different custom funds for teams, based on these types of requests. 

Many of Summit Trail Advisors’ ultra-high-net-worth clients are interested in tapping into private equity, including direct investments and private equity funds, says Seth Katz, partner and head of investments of Summit Trail, a $1.8 billion RIA. Client allocations to the asset class can vary widely, depending on each clients’ needs, typically ranging between 5% and 20% of the portfolio. Some clients allocate even more than that, he says. 

“We definitely see an appetite among ultra-high-net-worth [investors] to see direct deals,” Katz says. But Katz says his firm tends to recommend caution with direct deals, and stresses the benefits of diversification. 

“I think we’re going to continue to see more capital moving into the private markets,” Katz says. What used to be the domain of institutions has moved more and more into the ultra-high-net-worth and high net-worth space, he adds. 

TIGER 21 members are using a combination of direct investments and private equity funds to access private equity, Goodstein says. Many members are investing in industries and companies they are familiar with from their business background, or adopting investments they have learned about from other members of the peer-to-peer investor education network, she says.

“This is the area that they know best,” Goodstein says. “They’re going to the space that they’re comfortable. These are entrepreneurs and business owners."

http://www.fundfire.com/c/1353663/154323

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