Investment Strategies

The Chase For Private Equity Gathers Pace Among TIGER 21 Members

Eliane Chavagnon, Editor - Family Wealth Report, May 5, 2016

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Investors are still ramping up their allocations to private equity, according to a survey of 400 high and ultra high net worth individuals.

Members of the exclusive investor network TIGER 21 increased their allocations to private equity by 1 per cent to 23 per cent in the first quarter of 2016 to reach the “highest rate ever recorded for the group,” the organization said.

When public equity and real estate allocations are added to the mix that figure rises to 70 per cent, and 78 per cent when allocations to hedge funds are included, according to the latest TIGER 21 Asset Allocation Report.

“While some of our members' hedge fund allocations are 'market neutral' by any standard, the 70 per cent for the three core equity holdings, and the 78 per cent when hedge fund allocations are added in, are at or near historic highs relative to prior levels,” said Michael Sonnenfeldt, founder and chairman of TIGER 21, which has over 400 members with over $40 billion in personal investable assets on aggregate.

The broader “risk equity” allocations (including hedge funds) peaked at 77 per cent in 2007 and fell to a low of 60 per cent in 2009. The new 78 per cent exposure “roughly compares to historic norms for institutions and 'balanced portfolios' of equity risk closer to 60 per cent,” TIGER 21 said. Within “risk equity,” the biggest shift over the last decade has been the growth in private equity from a low of 10 per cent to 23 per cent today.

Perhaps “even more noteworthy,” TIGER 21 said, is that private equity has topped the public equity allocation of 22 per cent “for the first time.” Cash allocations remain at 10 per cent – lower than historic cash allocations in more stressful times, it noted. Fixed income is also at 10 per cent and remains at or near the lows recorded over the last decade.

“The high private equity allocation is a reflection of the unique composition of our members, where the overwhelming majority are first-generation creators of significant wealth (usually through amazing entrepreneurial success) and therefore are better equipped to manage risk than many other types of investors,” said Sonnenfeldt.

“In the past decade, we have seen members double their investment allocations to private equity. It isn't surprising that when challenged by a negative real interest rate environment, where you have to take risk of one form or another just to 'keep up,' TIGER 21 members would rely heavily on what they are most familiar with – private equity and real estate. We are seeing members apply the same types of insights and strategies which allowed them to build great businesses and significant wealth in the first place.

“This interest rate environment presents a unique set of challenges. Higher allocations to private equity and real estate are not necessarily prescriptions for passive investors, but rather a reflection of how extraordinary business men and women who have already created great wealth by their own efforts, often from scratch, are adjusting (often following a liquidation event when their business was sold) to the current marketplace conditions.”

TIGER 21, which stands for The Investment Group for Enhanced Results in the 21st Century, has groups across North America and is launching in London later this year.

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