Ultra high net worth individuals in the exclusive TIGER 21 club have been ramping up their private equity allocations in recent months, increasing it by three percentage points over the first quarter.

Ultra high net worth individuals in the exclusive TIGER 21 club have been ramping up their private equity allocations in recent months, increasing it by three percentage points over the first quarter.

As recently as Q4 2010, private equity allocations in the group were just 9 per cent. This has since risen to 22 per cent for the end of the first quarter, according to the latest Asset Allocation Report.

Other prominent holdings in the group’s portfolios, which together amount to over $19 billion, include 19 per cent in real estate, which has decreased from 21 per cent at the end of 2012; public equity holdings of 23 per cent; 8 per cent in hedge funds; 14 per cent in fixed income, and 12 per cent in cash and equivalent. Commodities make up around just 1 per cent.

Aside from private equity, though, members only shifted allocations “slightly,” the organization said. Hedge funds were the only other asset class to see allocations rise over the first quarter, and this was only by 1 percentage point. Cash, currencies, fixed income and commodities stayed the same, while public equities saw a small fall of 1 percentage point.

 “Private equity investments have always been a favorite of our members – who largely come from entrepreneurial backgrounds where they were actively involved in running companies. At 22 per cent, allocation to private equity by our members has again risen to now reach the highest level recorded in our seven years tracking these allocations,” said Michael Sonnenfeldt, founder and chairman of TIGER 21.

Sonnenfeldt added that the high allocation to private equity was part of a trend that had been ongoing over the last 12 quarters.

“It is not that private equity is a better alternative for all investors than public equity,” he said, but that members were focusing on building private companies, returning to “what they know best” and “keeping things simple.”

As an example of the way entrepreneurs often support the sector in which they built their wealth, it recently emerged that the firm set up to manage Microsoft founder Paul Allen’s fortune, Vulcan Capital, has opened a downtown Palo Alto office. It will focus on investments in the $10-million to $100-million range, covering mid- to late-stage venture capital, growth equity, recaps, buyouts and strategic public market block investments.

“Most of the wealth in America historically has been built by building businesses the old fashioned way or holding real estate as it has appreciated over time, so it is not surprising that roughly 60 per cent of our portfolios are very roughly split between public equity, private equity and real estate,” said Sonnenfeldt.

He added that it was hard to draw “ironclad” conclusions about the dip in real estate holdings, as the group had seen similar levels before. Anecdotally, he suggested it may be due to the low-interest environment, which lowered income streams and made second homes, which are expensive to run, less attractive.

The fall continues a trend which set in early last year, and which has seen real estate holdings fall from 24 per cent since then.