Fearing U.S. Inflation, Wealthy Investors Go Global
With U.S. inflation racing at its quickest annual pace in two and a half years-reaching 3.2% mid-May due to higher energy and food prices-some ultra-high-net-worth investors are investing nearly a third of their portfolios outside of their home market, hedging currency risk, but otherwise holding steady in terms of hedge fund and alternatives portfolio allocations, according to a recent report.
Conducted by the Institute for Private Investors, which provides educational and networking resources for ultra-high-net-worth investors and operates as an independent U.S. subsidiary of Campden Media, the IPI Annual Family Performance Tracking Survey shows that while IPI member families-about 340 have investable assets of at least $30 million-have reaped the benefits of a more global portfolio since 2009, they are investing 28% of their portfolio outside of their domestic market; one in five of those surveyed invested 50% or more of their overall portfolio internationally.
To gain global exposure, 67% reported they are investing in international equities only; 57% are also investing in hedge funds and 49% in private equity.
Citing concerns regarding "the potential of inflation" and "the devaluation of the U.S. dollar," 23% of those surveyed said that they do manage currencies or hedge currency risk-of these 53% report using a currency overlay strategy or manager/. Twenty-four percent are using derivatives, and 18% are using ETFs.
While survey respondents' global long-only equity allocation rose from 11% in 2009 to 14% in 2010, the average asset allocation of investor portfolios remained similar to the average allocation reported last year. Also similar to last year, alternatives comprised just under half (42%) of the investor portfolio; hedge funds held steady at 19%, down from a high of 24% in 2006; and fixed income (cash, taxable bonds and municipals) fell slightly from 27% to 25%-attributable in large measure to investors pulling out of municipals (down 4% this year).
As investors, the ultra-wealthy are often seen as trendsetters, and therefore leading indicators of the broader market, according to Charlotte Beyer, IPI's CEO, who noted that IPI members led the move into hedge funds in the early 1990s. "What we've seen over the years is that sophisticated private investors are essentially early adopters," she said. "Their investment strategies are harbingers of what becomes reflected in the overall market, in terms of both institutional and individual investors."
Of the 1,100 individual ultra-high-net-worth investors who comprise IPI's membership (89% reside in the U.S.), 79 families participated in the April survey-IPI's twelfth-which is designed to track members' expectations, returns, and asset allocations. According to the survey, IPI members realized a 11.26% return for 2010. While shy of the 15% S&P return, IPI said its members' ten-year average return of 6% does beat the S&P's 3.6%. Go to www.memberlink.net for further information.
In other news ...
Luxury home values dropped in Los Angeles, San Diego and San Francisco in the first quarter compared to the fourth quarter of 2010, according to the First Republic Prestige Home Index compiled by First Republic Bank, a provider of private banking, private business banking and wealth management services. San Francisco Bay Area values, for example, lost 4.3% from the fourth quarter and were 1.9% lower compared to a year ago. Go to www.firstrepublic.com for further information.
Fewer executives are reporting a pay freeze in 2011 than in 2010, according to the fifth annual Financial Executive Compensation Survey, conducted by the Financial Executives Research Foundation. Those in the finance profession also report a boost in their average salary increases over 2010's reported low, while they continue to take on a vast amount of responsibilities in their roles. Go to www.financialexecutives.org for further information.
The Dow Jones Credit Suisse Hedge Fund Index was up 1.80% at the end of April, with nine out of ten strategies posting positive performances for the month. Managed futures was the best performing sector, gaining 5.40% as managers capitalized on positive momentum in both equity and energy prices. Equity market neutral managers were up 3.37% as managers benefited from low stock correlations and a largely fundamental orientation throughout the month, while global macro hedge funds were up 2.46% in April, according to the index. Go to www.hedgeindex.com for further information.
A study by Sullivan, a New York communications strategy and design firm, provides insights on how investors feel about trust, loyalty and communication in regards to their advisors and what organizations can do to improve their relationships with investors. The study examines the "new conservatism" among investors, and shows a need for advisors' use of a "new language." Go to www.sullivannyc.com for further information.
Nearly 80% of private equity fund managers indicate that there will be more attractive investment opportunities in 2011 than in 2010, while 67% suggested that there will be increased IPO activity by private equity portfolio companies this year, according to a new study by Rothstein Kass, a wealth manager in Roseland, N.J. Go to www.rkco.com for further information.
Mark Kritzman, chief investment officer of Boston-based Windham Capital Management, LLC (www.windhamcapital.com), has received the Graham and Dodd Scroll Award from the Financial Analysts Journal for a jointly-authored article published in 2010, "In Defense of Optimization: The Fallacy of 1/N." The article disputes research showing that optimized portfolios provide no value without informed inputs. To see the entire article, click here.
The Chartered Alternative Investment Analyst Association (CAIA) in Amherst, Mass., has formed an alliance with the New York Hedge Fund Roundtable, a non-profit organization that promotes education and best practices in the hedge fund industry. Through this alliance, CAIA has become the official designation of the Roundtable, whose members will receive a 10% discount on standard exam registration fees for both levels of the CAIA exams. Go to www.caia.org and www.newyorkhedgefundroundtable.org for further information.
Events
"Sustaining Your Small Family Office: Essential Tools for Long-Term Success," the second in the Family Office Exchange's sustainability workshop series (attending the first is not a prerequisite) for owners and leaders of offices with ten or fewer employees, will be held May 31 and June 1 in Chicago. For further information go to www.foxexchange.com.
J.P. Morgan China Conference 2011 will be held June 1-3 at the Grand Hyatt Beijing Hotel in Beijing, China. For further information e-mail [email protected].
The 2011 NAREIT Investor Forum will be held June 7-9 at the Waldorf Astoria in New York City. Go to www.reit.com for further information.
The inaugural Invest Caribbean 2011 Power Breakfast will be held June 9 at the New York Marriott Marquis Hotel in New York City. Go to on investcaribbeannow.com for further information.
The First Annual Social Investment Forum Conference will be held June 9-10 at The Fairmont Hotel in Washington, D.C. The event is designed for leaders of the sustainable and socially responsible investing community. Click here conference information.
Women's Business Enterprise National Council's 12th Annual National Conference and Business Fair will be held June 21 - 23 at the Mandalay Bay Resort and Convention Center in Las Vegas, bringing together over 3,000 corporations and women business owners. Go to www.wbenc.org for further information.
The Credit Suisse China Investment Conference 2011 will be held June 22-24 at Le Meridien Wanda Chongqing Hotel in Chongqing, China. Go to www.credit-suisse.com for further information.
The Angel Venture Forum, a group of investors, leaders, entrepreneurs and professionals in the Mid-Atlantic region, has announced the start of year-long networking and education programs designed to discover and develop early stage companies in the Washington, D.C., metropolitan area. The program formally kicks off July 12, with training and networking sessions for entrepreneurs. Companies seeking angel funding or investor mentors should go to www.angelventureforum.com/index.html for further information.
LPL Financial's focus11 Annual Conference will be held August 7-10 at McCormick Place West in Chicago. Click here for further information.
The 3rd Annual Qatar Global Investment Forum 2011, hosted by QInvest and organized by Institutional Investor, will be held November 16 at the Four Seasons Hotel in Doha, Qatar. For further information e-mail Meriem Achoura at [email protected].
On The Move
HSBC Private Bank has appointed Gregory Dennerlein, previously with the institutional sales team at Northern Trust in Chicago, as senior vice president and senior relationship manager, and Christopher Simcox, a former financial advisor at Bernstein Global Wealth, as vice president and relationship manager, at HSBC's Chicago office.
U.S. Trust has hired three senior executives to serve high-net-worth clients in the company's Northeast and Central U.S. markets. Greg Khost was promoted from managing director and sales performance executive for U.S. Trust's Northeast Division to managing director and regional executive, based in Florham Park, N.J.; Donald R. Quattrucci, previously at BNY Mellon's Private Wealth Management group, has been appointed managing director and market investment executive, based in Rhode Island; and Nancy E. Anderson, who held senior leadership positions at U.S. Bank Private Client Reserve and Citigroup Global Wealth Management, has been appointed senior vice president, private client advisor, based in Minneapolis.
City National Bank has hired Judith M. Lu and Michael Scott to serve as a senior vice president, senior private client advisor, and vice president and senior private client advisor at the bank's Private Client Services team in Los Angeles. Lu previously served as executive director and senior client advisor for UBS Wealth Management. Scott was formerly with TIAA-CREF Trust Company as a senior portfolio manager in Pasadena, Calif., and also worked for Bank of America in its private advisory services division.
HNW Inc., a New York-based provider of wealth marketing consulting services and software to the financial and luxury goods industries, has appointed Lisa Fabiano as general manager. Previously, Fabiano was chief talent officer for Enfatico, a global marketing and communications agency start-up with Dell Computers as its founding client, and was managing director at Margeotes Fertitta Powell, also a marketing communications agency.
UBS Trust Company has appointed Richard Immesberger as president. Previously, Immesberger managed the trust and wealth management division at WSFS Bank in Wilmington, Del., where he served on several executive boards, including the bank's executive management committee. His career also includes sales and leadership posts at Bank of America and Glenmede Trust Company.
Gradney & Vistica Financial Management LLC, a wealth management firm in Carlsbad, Calif., has joined St. Louis-based BAM Advisor Network, a turnkey asset management provider with more than 125 independent RIA member firms. Gradney & Vistica provides individual fee-based wealth management services and 401(k) consulting services to clients throughout California.
Atlantic-Pacific Capital, a placement agency and advisory firm for alternative investments, has formed the LP Advisory Group, which provides limited partners with the analysis, tools and expertise to actively manage their private equity portfolios. The dedicated four-member LP Advisory team, who previously worked together at Smithbridge Partners, consists of Michael Pilson, Kevin Imhoff, Alexander Mejia, and John Pilson.
-Cort Smith