Ultrawealthy Investors Commit More to Private Equity Than Stock

April 26, 2016

By Shasha Dai

Michael Sonnenfeldt, founder and chairman of Tiger 21. PHOTO: TIGER 21

Members of TIGER 21 LLC, a network of ultrawealthy investors, allocated more capital to private equity than they did to public equity for the first time since the group began tracking member asset allocations in 2007. 

The 410 Members of TIGER 21—which stands for The Investment Group for Enhanced Results in the 21st Century—allocated an average of 23% of their assets to private equity as of March 31, compared with 22% allocated to public equity, according to the New York group’s latest quarterly survey.

The only asset class that saw a higher allocation than private equity was real estate, which represented 25% of total assets, according to the survey.

Other asset classes the Members allocated capital to as of March 31 include fixed income (11%), cash (10%) and hedge funds (8%). 

The 23% allocation to private equity was up from 18% a year earlier and the highest level since 2007.

According to TIGER 21, the preference toward private equity stemmed from the fact its Members are entrepreneurs and former executives who have built businesses. Many joined the group after selling their businesses and wanted to be part of a group of like-minded people who are interested in preserving their wealth, Tiger 21 said. Private equity’s approach to acquiring and building businesses therefore appeals to them.

Another factor that contributed to the ultrawealthy investors’ preference for private equity was the higher risk-adjusted returns from the asset class. By comparison, public equity has returned an average of just above 4% annually for the past few years, according to TIGER 21.

“There is a dramatically continuing shift towards favoring private equity,” said Michael Sonnenfeldt, founder and chairman of TIGER 21.

In a zero-interest-rate environment, TIGER 21’s Members are “forced to take more and more risk…just to keep up,” he said.

He added that a decade ago TIGER 21’s Members allocated twice as much capital to public equity than they did to private equity.

Founded in 1999, TIGER 21 has 410 Members in U.S. and Canada, most of whom are first-generation entrepreneurs. The Members have collective personal wealth of more than $40 billion, with an average investible capital of $100 million each.

Mr. Sonnenfeldt said about 60% of its Members private-equity allocations are in the form of majority or control investments in private businesses. Another 20% are in the form of minority investments, while 20% are invested in private-equity funds.

Looking ahead, Mr. Sonnenfeldt said he doesn’t anticipate much change to the private-equity allocation of TIGER 21’s Members. He said public equity, private equity and real estate combined account for about 70% of the members’ portfolios, higher than 60% a typical public pension fund would invest in various forms of equities.

The current allocations represent “upper limits of the combination” of public equity, private equity and real estate, said Mr. Sonnenfeldt.

 

http://www.wsj.com/articles/ultrawealthy-investors-commit-more-to-private-equity-than-stock-1461672002

 

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