Investors are going back to basics and looking to invest directly in businesses as public financial markets bite, a new survey from the Institute of Private Investors suggests.

Investors are going back to basics and looking to invest directly in businesses as public financial markets bite, a new survey from the Institute of Private Investors suggests.

In the IPI’s latest Family Performance Survey ultra-wealthy investors appeared to be veering away from the US stock market in favor of both alternative investments and international stocks.

Surveyed investors reported plans to increase their allocation to commodities this year (48 per cent), as well as real estate (45 per cent), and international equities (44 per cent). Meanwhile, many investors are planning to move out of cash and re-invest, with over one-third expecting to decrease their cash holdings.

As an indicator of the US stock market’s performance last year, the S&P 500 ended flat (based on stock prices alone), but with major differences by quarter as markets were rocked by economic and political crises; it rose 11.15 per cent in the fourth quarter, for example. Looking ahead, “domestic and international turmoil are expected to continue in 2012,” according to the S&P Market Attributes report.

In this climate, investors appear to be less reliant on public markets to protect and grow their wealth, with 55 per cent of IPI members looking to add to their direct investments in private companies. Many also revealed a bullish sentiment on tangible assets such as gold, land and artwork. Although gold ended last year down from its September peak, its price still rose some 10 per cent for the year.

“The common refrain we’re hearing from investors this year is that they’re decreasing their exposure to public markets and relying less on financial instruments and trading strategies,” said Charlotte Beyer, IPI founder and chief executive. “Many investors are continuing to position themselves defensively.”

“Families reported that they’re looking at non-public investments, focusing on direct investments in private companies, along with real estate,” said Mindy Rosenthal, IPI executive director. “More investors said they’re backing real companies with real businesses, including start-ups, and doing so globally.”

Great expectations?

Even as investors report a resurgent interest in private markets, they also predict a more positive performance from the S&P this year, at 6.4 per cent, compared to 2.1 per cent in 2011 (when including dividends).

On overall portfolio performance, they expect an average return of 4.9 per cent for 2011, down from 11.26 per cent for 2010.

IPI has around 345 member-families with minimum investible assets of $30 million.