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What The Wealthy Are Holding - Tiger 21 Reveals Member Asset Allocations

Harriet Davies

26 April 2012

While the worst of the financial crisis may be over, members of the exclusive Tiger 21 peer-to-peer network feel “we are no way in the clear,” according to their asset allocations for the first quarter.

Consecutively, changes have been “muted” among high net worth members, said Tiger 21, but on a year-over-year basis there were some significant shifts in positioning.

The organization said it has just under 200 members who collectively manage around $18 billion in investable assets and represent a cross section of entrepreneurs, inventors and top executives.

“Members continue to pursue a cautious approach to investing and are making very deliberate moves with their portfolio, only after much research and discussion,” said Michael Sonnenfeldt, founder and chairman of TIGER 21. He added that members “remain committed to long-term wealth accumulation and preservation.”

Cash may finally be losing its charm, and members’ holdings have come down a full five percentage points since the first quarter of 2011, when cash allocations hit a high of 17 per cent. However, Tiger 21 cautions that, at 12 per cent of holdings, members’ liquidity reserves are still higher than most financial advisors would recommend and are indicative of a preference among this segment to retain at least a three- or four-year cash supply.

Fixed income holdings have also fallen, declining five percentage points from Q1 2011, from 20 per cent to 15 per cent. They have now fallen eight percentage points since the fourth quarter of 2009, with low bond yields and sovereign debt woes possible reasons behind this drop, said Tiger 21.

Meanwhile, public equity holdings also dipped 2 percentage points year-over-year, and stood at 22 per cent in the first quarter 2012. This proportion includes both direct equities and fund holdings.

This level of public equity holdings “remains way off” the pre-2009 level of over 30 per cent, said the organization, as “members do not see a correlation between the performance of the stock market and what has (or has not been done) to fix the economy.”

Private markets gaining favor

Allocations to private equity rose by four percentage points year-over-year, hitting 14 per cent for the first quarter, possibly because Tiger 21 members remain “leery of the public markets,” the organization said.

As an indicator of the US stock market’s performance and volatility 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.

The allocations which have emerged from Tiger 21 corroborate data released at the beginning of the year by the Institute of Private Investors, which also displayed an appetite for private investment among the wealthy.

The IPI survey found that, in the current 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.

Members buying what they know

Tiger 21 said in a statement that its members were capitalizing on their personal experience in private equity in the belief that “over the long term it represents some of the best opportunities to preserve and build capital.”

Real estate has also seen a big comeback, clocking up the largest increase in allocation over the past year with a five-percentage-point rise. Holdings began to climb from the second quarter of 2011, and hit 24 per cent by the fourth quarter.

Tiger 21 cited tax advantages as well as opportunities in distressed real estate as some of the drivers behind this trend, as well as members’ own knowledge of the sector, as many had created wealth in real estate in the past and had the wherewithal to evaluate these investments.