Affluent Americans are more likely to allocate assets to alternative investment strategies in asset classes such as private equity, real estate investment trusts and hedge funds today than they have been for several years.
That is especially true for half of high-net-worth investors who say they are better off today than they were five years ago. The findings come from Northern Trust’s recent Wealth in America survey, which provides insights into the financial attitudes of 1,700 wealthy Americans.
Thirty per cent of high-net-worth investors, defined as those with USD5m or more in investable assets, say they are more inclined to consider alternative investments now than they were five years ago. Among these high-net-worth investors, private equity (35 per cent), managed futures (32 per cent), REITs (28 per cent) are their top investment alternatives choices followed by hedge funds (23 per cent) and venture capital (17 per cent). More than a quarter (28 per cent) say limited partnerships are their preferred legal structure for holding these investments.
“While not suitable for everyone, alternative investments can provide portfolio diversification as well as offer exposure to sources of return not available from traditional stocks and bonds,” says Katie Nixon, Northern Trust’s chief investment officer for wealth management. “Given our Goals Driven Investing approach, we believe every asset class has a unique role in a portfolio, including alternatives. While hedge funds can offer accredited investors diversification and other risk management benefits, private equity can enhance return through manager skill in addition to an illiquidity premium.”
This risk premium is of increased importance as the survey found that 63 per cent of high-net-worth investors are likely to take calculated risks with their investments to grow their wealth and 52 per cent say they will look for new investments to grow their wealth.
The survey also surveyed high-net-worth Americans on other investment topics and found that:
• One in five holds jewellery, art and antiques, and other collectibles as part of their portfolio.
• 56 per cent of couples discuss how to manage personal wealth at least once a quarter.
• 59 per cent are willing to pay for advice from a financial adviser.
• 81 per cent say life goals such as good health and traveling the world are highly important considerations when developing a financial plan. However, they feel less confident today that they will achieve their goals when compared to 2007.
“Whether clients believe they are better off or feel less confident, it is important for them to consider both risk and return when planning for the future,” says Nixon. “We work closely with clients to formulate a plan aimed at accomplishing both their financial and life goals.”