Private equity has overtaken real estate as the largest allocation in the portfolios of the super-rich, according to Michael Sonnenfeldt, the founder and chairman of TIGER 21.
TIGER 21 is a peer membership organisation for ultra-high-net-worth individuals focused on wealth creation and preservation.
The organisation boasts over 1,450 global members who collectively manage personal assets exceeding $165 billion.
The TIGER 21 Asset Allocation Report tracks the aggregate asset allocations of members based on their annual portfolio defense presentations, covering a trailing 12-month period.
TIGER 21 Member Allocation (Q3 2023–Q2 2024)
Finding Opportunities
TIGER 21 members, including entrepreneurs, investors, and top executives, many of whom have recently sold their businesses, are primarily focused on wealth preservation.
Real estate had been the top choice for the past 15 years, largely because many members built their wealth in this sector.
Now, private assets are favoured, with public assets reduced to just 22%, and a growing focus on indexes and exchange-traded funds within the shrinking public equity allocation.
Digital Display of Graphs and Charts
The ongoing artificial intelligence (AI) revolution has created opportunities for investors in public markets, particularly with the large American tech firms known as the Magnificent Seven: Apple, Microsoft, Amazon, NVIDIA, Meta, Alphabet, and Tesla. Interest in public equities among TIGER 21 members has increased by 3% over the past year, partly due to the rise in public markets.
A recent survey revealed that 43% of members are investing in NVIDIA, with 57% expecting the firm’s success to continue for the next decade.
Investing in the Magnificent Seven has provided a unique opportunity to invest in AI through top technology companies. Even if AI ventures fail, these companies remain world-class technology leaders with vast potential.
Previously, investing in new high-tech opportunities often meant betting on small companies heavily dependent on a single innovation, which posed significant risks.
Public equities offer benefits such as liquidity, transparency, regulatory oversight, and lower fees, while historically, superior returns were found in the illiquid private equity markets. However, the extraordinary performance of the Magnificent Seven has been a standout, driving market gains.
Changes in Real Estate Investment
Real estate, which held the top spot for 15 years, is now the second-largest allocation in members’ portfolios at 26%, surpassed by private equity. Members see opportunities in last-mile real estate but show less interest in office and retail spaces.
Many members, having created their wealth as developers, can invest directly in distressed opportunities and leverage the current dynamic real estate markets.
For instance, an underutilized office building might be transformed into a residential or hotel property, creating attractive financial opportunities.
Decline in Hedge Fund Investment
Allocations to hedge funds among TIGER 21 members have dropped from 12% to 2% over the past 16 years. Hedge funds are seen as less attractive, with many members preferring the risk-adjusted, after-fee returns of index funds.
What’s Ahead?
Despite mixed economic signals, TIGER 21 members remain heavily invested ‘long,’ with 76% of their portfolios in real estate, public equity, and private equity, said Sonnenfeldt.
Over the past 15 years, private equity allocations have increased dramatically, with venture capital seen as offering the most growth potential within this sector.
Many members, having created their wealth by starting businesses, possess skills that give them an edge when investing in new ventures.
They prefer direct investments in businesses with significant potential, leveraging their unique backgrounds and insights to gain an advantage.
This approach helps entrepreneurs become better investors after selling their businesses
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