Many wealthy individuals with alternative investments expressed greater satisfaction over the last 12 months with every category of alternatives, including hedge funds, venture capital, re
Many wealthy individuals with alternative investments expressed greater satisfaction over the last 12 months with every category of alternatives, including hedge funds, venture capital, real estate and private equity, than their more traditional investments, including stocks and bonds, according to a survey of attitudes toward alternative investments sponsored by Bank of America and conducted by independent research firm Forbes Consulting Group.
The survey polled 403 high net worth investors with more than USD3m in investible assets, of whom 267 held investments in alternatives of all kinds, including hedge funds, commodities, venture capital, private equity and investment property; 92 held investments in hedge funds or funds of hedge funds. The average respondent had USD7.9m in investible assets, and 32 per cent of those sampled had investible assets of USD10m or more.
While only 30 per cent of the wealthy Americans surveyed who held alternative investments expressed satisfaction with the more traditional assets in their portfolios, significant numbers indicated greater satisfaction with their investments in the four major alternative categories: 51 per cent with hedge funds, 44 per cent with venture capital, 41 per cent with real estate and 35 per cent with private equity.
The findings suggested a correlation between satisfaction with alternative investments and the length of time the investments were held. Investors with 10 or more years of experience in alternatives were almost twice as likely as those with fewer than 10 years to be ‘extremely satisfied’ with their total portfolio since their initial investment.
‘Alternatives are timely investments because dislocations create the types of opportunities that funds with stable, long-term capital thrive on,’ says David Bailin, president of Bank of America’s alternative investment solutions business. ‘Our study demonstrates that investors recognise that even in stressful market conditions, alternative investments are an important component in an overall portfolio and can help mitigate volatility.’
Negative stories published about hedge funds appear not to deter experienced hedge fund investors. When asked if negative publicity about hedge funds affected their investment decisions, 44 per cent of those invested in hedge fund vehicles said no, while only 20 per cent agreed.
‘The number of respondents who say they avoid hedge funds out of fear has been described as a trend by some industry watchers,’ Bailin says. ‘However, experience with alternative investments and access to advice seems to have overcome fear, according to the survey findings.
‘For example, the majority of respondents with investments in hedge fund vehicles (55 per cent) said that they were not deterred by the possibility that they would lose more money than they could afford to by investing in such funds. Only 10 per cent said they were afraid.
‘Our study demonstrates that, despite the portrayal of hedge fund investors as risk-takers investing in aggressive managers, many high net worth investors have a realistic understanding of the risks associated with their holdings and realise that large alternatives managers are institutional in their investment approach and the quality of their professionals.’
The survey also found that more than half (57 per cent) of the wealthy Americans surveyed who invest in hedge funds had been satisfied with these vehicles since their initial investment, with only 5 per cent expressing dissatisfaction. However, 54 per cent of respondents who invested in alternatives viewed hedge funds carrying risk over the next five years, while only 17 per cent saw risk in equity mutual funds.
Nearly six out of 10 individuals surveyed (59 per cent) said they were more likely to invest in a hedge fund registered with the Securities and Exchange Commission than a non-registered fund. Almost half (48 per cent) of investors who invested in any type of hedge fund also said they were more likely to invest in an SEC-registered hedge fund than a non-registered fund.
Roughly half of the 403 respondents (48 per cent) and slightly more of those who invested in hedge funds (51 per cent) said they were more likely to invest in a hedge fund that has been carefully screened. Just 24 per cent of overall respondents and 18 per cent of hedge fund investors did not believe third-party screening was important.
‘The number of alternative investment vehicles has grown exponentially, yet there are few easy ways for investors to assess fund performance or manager talent,’ Bailin says. ‘This is why the industry must commit to educating investors, strengthening performance reporting and providing standardised information to enable investors and their advisors to make better investment decisions.’