Alternatives and Cash Holdings Are Surprise Winners in HNW Survey

Stephen Harris

27 February 2006

High net worth investors are set to invest more into hedge funds and cash and shying away from US equities in the year ahead, according to a survey of US investors by Northern Trust. The survey revealed that 70 per cent of those with more than $1 million in investable assets, already seek higher returns by allocating a proportion of their portfolio in alternative assets such as hedge funds, private equity and real estate. And it is the younger HNWs - those under 35 – who have a greater interest in the new asset classes, allocating 27 per cent of their portfolios to them. The overall average was 18 per cent. Worrying for the mutual fund industry, young millionaires also have the largest cash positions of any group, with a 19 per cent allocation to this class. Investors with more than $5 million to invest have 26 per cent of their assets in alternative assets and 16 per cent in cash. Overall, the polled group had 13 per cent of their investable assets in cash. This extreme approach runs counter to what advisors would recommend. For instance, Northern Trust, recommend that clients have 10 per cent of their portfolios in alternative assets and 4 per cent in cash. The results have come as a surprise to Northern Trust, although the Chicago-based bank says the higher cash position might be explained away as seasonal, because the poll was conducted in November when people may have been expecting a high tax bill. But an explanation for the high allotment to hedge funds and private equity groups could not be found.