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’s 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
Wealth in America
survey, which provides insights into the financial attitudes of 1,700 wealthy Americans.
Thirty percent of high-net-worth investors, defined as those with $5 million 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 percent), managed futures (32 percent), REITs (28 percent) are their top investment alternatives choices followed by hedge funds (23 percent) and venture capital (17 percent). More than a quarter (28 percent) 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,” said 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 percent of high-net-worth investors are likely to take calculated risks with their investments to grow their wealth and 52 percent 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 jewelry, art and antiques, and other collectibles as part of their portfolio.
- 56 percent of couples discuss how to manage personal wealth at least once a quarter.
- 59 percent are willing to pay for advice from a financial advisor.
- 81 percent 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,” said Nixon. “We work closely with clients to formulate a plan aimed at accomplishing both their financial and life goals.”