Wealthy change tack on investments to focus on growth

The world’s wealthy intend to take on more risk this year as they try to regain money lost during the global financial crisis, new research reveals.

In a survey completed by the Institute for Private Investors, an educational and networking service for ultra-high net worth individuals, 63% of respondents said they planned to increase their allocation to global equities in 2013 and 53% plan to increase their positions in domestic equities.

The Family Performance Tracking survey, now in its 14th year, found 51% of respondents said growth was their primary objective in 2013, compared to 47% in 2012. Income also grew in importance up to 13% from 10% last year.

In contrast, those that listed wealth protection as their primary objective were down to 36% from 43% in 2012.

IPI president Mindy Rosenthal said: “This year’s survey shows that the emotional climate of ultra-affluent investors is marked by a feeling that the time is right to get off the sidelines and start focusing on rebuilding wealth lost in the Great Recession.”

“Private investors are still highly concerned about preserving capital, but they realise to preserve wealth they need to generate returns.”

All survey respondents posted positive returns in 2012, ranging from 1.5% to 23.2%, reversing the downward trend begun in 2009. The average return, net of fees, was 10.1%, up from an average of 0.6% in 2011, when returns ranged from -10% to +25%.

In terms of asset allocations, 42% of respondents plan to decrease cash in 2013, 37% plan to decrease municipal bonds, and 44% plan to decrease taxable bonds. In contrast, 40% plan to increase allocations to private equity.

The survey also found asset allocations were being fine-tuned according to performance history or future assumptions, as opposed to changes in risk tolerance, with 69% of respondents saying they re-allocated based on favourable conditions in a particular asset class. Fifty-seven per cent said they re-allocated due to a shift in overall performance expectations and 52% due to poor performance of a particular asset class.

The average portfolio allocation in 2012, according to respondents, was 18% in domestic equities; global equities, 14%; taxable bonds 10%; municipals 7%; hedge funds and/or funds of funds 18%; private equity 10%, real estate direct investment 6%; commodities 5%; venture capital 2%; direct investments in private companies 2%; and other 1%.

Investors had mixed feelings about hedge funds, with 22% planning to increase to allocation and 28% planning to decrease it in 2013.

IPI, part of Campden Wealth, interviewed 69 member families with minimum assets of $30 million (€23 million) for the survey.