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HNW Entrepreneur Investors Smile On Stocks; Think Sustainability Costs Returns - Study
Tom Burroughes
27 January 2020
High net worth and ultra-HNW entrepreneurs around the world are keenest on holding equities and investing in their own firms, a position that makes sense as stocks’ yields are considerably more alluring than those for bonds, according to (the wealth consultancy formerly known as Scorpio), late last week issued the sixth annual global entrepreneur report, charting the views of businessmen and women about the asset classes they like and those which they are wary of. The report showed considerable variation around the world in attitudes about private equity, listed equities, hedge funds, property, bonds and cash. Asset allocation
The study is drawn from entrepreneurs (not all clients of BNP Paribas), holding an average of $16.1 million in investable assets (totalling $18.2 billion). Some 77 per cent of the survey audience were men and the rest were women. By region, 57 per cent come from Europe, 13 per cent from the US, 27 per cent from Asia and 3 per cent from the Gulf Co-operation Council countries of the Middle East.
More than half of entrepreneurs in the sample do not think that real estate and cash are risky assets. With Baby Boomer entrepreneurs, 63 per cent of them do not think that property is risky.
“Financial conditions for real estate are very friendly at the moment, but it’s a misunderstanding to say there are no (or limited) risks because of course there are. People underestimate the cyclical nature of real estate,” Florent Bronès, chief investment officer for BNP Paribas WM, said in the report. “Think about the global financial crisis – it’s a very long cycle, and sooner or later this risk will come back.”
There are some big national contrasts. Eighty-four per cent of Belgian entrepreneurs said stocks were risky but only 5 per cent of Chinese respondents think so. Turning to angel investing, Belgians (65 per cent) think they are risky, but only 38 per cent of US investors think that, and none in the GCC or Singapore think so.
No free lunches in capitalism?
One survey finding suggests that many people still think that putting money to work in ways deemed “sustainable” means sacrificing returns, even though many advocates of environment, social and governance-themed investment insist that this way of investing does not involve such a surrender. Some 58 per cent of those questioned said that sustainable investment requires a “long-term sacrifice of returns”. Some 35 per cent expect some (single-digit) long-term sacrifice, and 23 per cent assume a significant, as in double-digit, difference.
Some 70 per cent of entrepreneurs globally are more willing to invest sustainability than they were 18 months ago, the study found. Almost half of the sample (46 per cent) have invested some of their wealth sustainably. However, the AON/BNP Paribas study found that total allocations have actually dropped since the study began in 2015.
The single-biggest asset holding of respondents is equities (19 per cent), alongside one’s own business (19 per cent); fixed income accounted for 14 per cent, and cash accounted for 13 per cent. At the bottom end came angel investment, at 3 per cent.
There is a regional difference in how investors think about valuations of equities. European investors (46 per cent) are twice as likely as those in Asia (27 per cent) and the US (23 per cent) to be concerned about the high valuation of stocks, the report said.
Turning to the risks stemming from currency volatility, the study showed that only 43 per cent of investors are worried about how foreign exchange fluctuations will hit portfolios. But this picture is not uniform: A majority of investors in China, Hong Kong and Singapore are worried.
“Which currency entrepreneurs hold their cash will determine the level of risk, as clearly there are different risks associated with investing wealth in US dollars or Indian rupees. In Asia, entrepreneurs will often prefer US dollars to reduce their exposure to currency risk,” BNP Paribas’ Bronès said.
Political uncertainty also adds another dimension, the report said. As far as the Brexit process is concerned, 52 per cent of UK entrepreneurs, for example, are concerned about their investments due to what might happen to the sterling exchange rate.
Themes
BNP Paribas set out investment themes for clients this year. For example, it predicts that economic growth “will remain weak and vulnerable to shocks”, making it necessary to hold “high-quality” companies with strong profit margins, low gearing and low profitability variation. Investors should also consider taking advantage of current row-back from globalisation, such as concentrating on regional markets, holding more safe-haven assets. Another theme is governments’ increased infrastructure spending, creating opportunities in building/construction stocks, renewable energy and clean transportation stocks, and infrastructure-related mutual funds or private equity funds.
Within the environmental/sustainability theme, already mentioned, BNP Paribas WM suggests that clients should look at areas such as “clean energy” and water and waste management.