Wealthy Investors Let Emotions Rule, Survey Says
Discipline, said to be the bridge between goals and accomplishment, is one thing that some of the very rich lack and their money can't buy, according to a new survey in which the wealthy see themselves as overly emotional and bereft of self control. And they wish it weren't so.
A survey of more than 2,000 high-net-worth individuals conducted by Barclays Wealth shows that 41% desire more self-control over their finances; this need is experienced most by the wealthiest (those with $15 million or more), 45% of whom want more control. On a global scale, respondents in Asia-Pacific have the greatest desire for financial discipline, particularly in Taiwan (#1) and Hong Kong (#2). In contrast, developed markets exhibit the least desire for self-control, as illustrated by respondents in Spain (#1), Australia (#2), and the U.S. (#3). In general, women have a greater desire for self-control (45%) than men (39%), and are more likely to use financial strategies (53% of women versus 51% of men).
Risk and Rules: The Role of Control in Financial Decision Making, the latest report in the Barclays Wealth Insights series, which according to Barclays provides the first ever in-depth examination of wealthy investors from a behavioral finance perspective, considers the different financial personality traits that exist amongst wealthy investors, as well as the different self-imposed rules and strategies that they put in place to deal with these traits.
"I think many were surprised by the proportion of high-net-worth individuals who wish for more financial discipline and consciously use strategies to achieve this," said Greg B. Davies, head of Behavioral and Quantitative Finance, Barclays Wealth. "We may have expected that being able to be less concerned about discipline might have been a potential luxury afforded to the wealthy." For those seeking help, however, traditional finance theory-and the finance industry itself-fall short, he explained, by giving investors a "rational" portfolio but "no assistance on how to implement and stick with it."
In comparing the group with the highest strategy usage to that with the lowest strategy usage, the survey shows a 13% boost in financial satisfaction and a 12% rise in wealth among high-strategy investors. Compared to other countries surveyed, wealthy investors in the U.S. are more likely to adopt a buy-and-hold strategy (23% versus 40% globally), recognizing that frequent trading doesn't necessarily equate to higher returns. They also are cognizant of the trading paradox that has 46% of respondents believing it necessary to trade often to do well while being fully aware that their emotions are forcing them to think and act this way. The wealthy in the U.S. also are more satisfied than most, ranking fifth among the countries surveyed. From a regional perspective, investors in the Midwest and West have the highest levels of satisfaction with their financial situation (84% and 77% respectively), while those in the Northeast have the lowest (75%). Regardless, 29% of Americans express the desire for more self-discipline.
What might advisors take away from the survey? "We cannot sweep behavioral under the carpet and expect people to be able to invest with complete rationality; we are human and that comes with emotions and personality differences," said Davies. "However, to overcome this, it is not enough to talk about it. We need to take practical steps in times of calm reflection to inoculate ourselves against our own tendencies in times of stress. This means understanding who you are, and then adapting your portfolio, your decision-making framework, and your strategy to suit this. I don't think the behavior will be news to many who advise clients. But the existence of systematic tools to understand and deal with this effectively may well be news."
In other news ...
KSL Capital Partners LLC, a private equity firm based in Denver, has completed the final closing of KSL Capital Partners III LP. The fund, whose investors include high-net-worth individuals and families, public and private pensions, foundations, and endowments, has more than $2 billion in commitments and will specialize in investments in travel and leisure businesses. KSL currently has in excess of $3.5 billion in equity commitments under management. Go to www.kslcapital.com for further information.
Advisor Group, a network of more than 4,800 independent financial advisors, has launched its second-generation platform for fee-based advisors, VISION2020 Wealth Management. Created in collaboration with Envestnet, the product replaces Advisor Group's original fee-based platform and offers Web-based portfolio management and trading tools and simplified account administration, while allowing advisors to manage some or all of their clients' accounts. Go to www.advisorgroup.com for further information.
The Credit Suisse Liquid Alternative Beta Index, which reflects the performance of the overall hedge fund industry, finished down 0.90% for May, according to Jordan Drachman, head of research for Alternative Beta Strategies at Credit Suisse. The Credit Suisse Long/Short Liquid Index, which replicates the aggregate return of long/short equity hedge funds, dropped 0.93% during May as equity markets fell amidst downgraded economic outlooks and disappointing first quarter earnings reports. Year-to-date, however, the strategy remains the top performer, up 5.58%, said Drachman. Go to www.credit-suisse.com/alternativebeta for further information.
A study conducted by the Investment Program Association, a group based in Ellicott City, Md., that champions the growth of direct investment products, showed that while only 40% of respondents claim some level of familiarity about direct investing in hard assets such as non-listed REITs and oil and gas and equipment leasing programs, more than 50% say they are "extremely" to "very interested" in investments that deliver the type of qualities direct investments provide. Survey respondents were U.S. adults with household income of $150,000 or more and a net worth of greater than $750,000. Go to www.ipa.com for further information.
AXA Private Equity (www.axaprivateequity.com), a European diversified private equity firm, has acquired from Citi Holdings, a unit of Citigroup (www.citigroup.com), a $1.7 billion portfolio of 207 limited partnership interests in private equity buyout funds and a portfolio of direct stakes in companies, according to AXA.
German prosecutors have charged four individuals with creating and selling through various legitimate outlets, over a 14-year period, nearly 50 faked paintings, according to a recent article in the New York Times. The works-valued at $21 million-were backed by elaborate fake provenance histories, and allegedly painted by well known artists. It is a cautionary tale, says Aris, the sole underwriter of ATPI art title insurance, because while authenticity, authorship, and attribution are not covered by art title insurance, these issues are related to the art market ownership risk. Vetting provenance information as a subset of legal title and correlating it to other title information is integral to the title insurer's underwriting process, said the company. Go to www.aristitle.com for further information.
May was not merry for some of the world's biggest hedge fund managers, with preliminary data from the Hennessee Group showing that the average portfolio lost 0.50% last month, due mostly to "tumbling commodity markets, fears about the speed of global growth, and Europe's debt crisis," according to Reuters. John Paulson's Advantage Plus fund lost 6%; Paul Tudor Jones' BVI Global Fund lost 3.4%; and David Einhorn (of hopeful Mets minority-ownership fame) reported a 0.00% return in May for his Greenlight Capital Offshore fund, reported Reuters.
The Fidelity Charitable Gift Fund, the nation's largest donor-advised fund and one of the largest public charities in the country, is providing a new consultation service for donors and advisors, and a series of seminars exclusively for advisors on how to donate closely held, illiquid assets efficiently and for the maximum benefit of donors and the receiving charities. These so-called complex assets, which generally are not well understood, said Fidelity, include private C- and S-Corp stock, restricted stock, limited partnership interests, real estate and other privately held assets. The seminars will be held in New York City on June 16; Philadelphia on September 27; Chicago on October 12; and Boston on October 20. For further information call 800-952-4438.
The Dow Jones Credit Suisse Core Hedge Fund Index finished down 1.71% in May, according to Oliver Schupp, president of Credit Suisse Index Co. LLC, who cited as reasons for the difficult trading environment relatively low volatility levels, higher intra-stock correlations and continued market sell-offs. Managed futures saw the most significant decline, falling 4.40% as positions in energy, currencies and equities detracted from performance, he said. Go to www.hedgeindex.com for further information.
The 2011 Macquarie Small and Mid-Cap Financials Conference will be held June 14-15 at Le Parker Meridien Hotel New York in New York City. Go to www.macquarieconnections.com/Iconference for further information.
Macquarie's Emerging Leaders Corporate Day will be held July 12-13 at the Fullerton Hotel in Singapore, and July 14-15 at the Mandarin Oriental Hotel in Hong Kong. Go to www.macquarieconnections.com/Iconference for further information.
The Family Office Exchange Financial Executives Forum will be held July 13-14 at the JW Marriott in Chicago. Go to www.familyoffice.com for further information.
The FPA Experience 2011 conference will be held September 15-18 in San Diego. Speakers include Frank Abagnale, an authority on forgery, embezzlement and secure documents; Alicia Munnell, the Peter F. Drucker Professor of Management Sciences at Boston College's Carroll School of Management; and William C. Taylor, a writer and entrepreneur. Some sponsorships remain available; exhibitors are still being accepted. Go to www.fpaannualconference.org for further information.
The IPA Fall Conference - Maintaining the Momentum!, a gathering of experts in the direct investment industry, will be held November 1-3 at The Arizona Grand Resort in Phoenix. Conference registration begins August 1. For sponsorship information, contact Jenna Erickson at (212) 812-9799 ext. 209; for general information go to ipa.com/2011-fall-conference.
On The Move
Cardinal Bank, based in Tysons Corner, Va., has hired Quentin Roos, a former financial advisor with TD Wealth Management, and Gregory Cartrette, a former financial advisor with PNC Investments, as assistant vice presidents and investment advisors for the company's wealth management division, Cardinal Wealth Services.
Evercore Partners Inc., a New York-based investment banking advisory firm whose investment management business comprises wealth management, institutional asset management and private equity investing, has established an alliance with Woori Investment & Securities, a South Korean-based investment bank, to work together on strategic cross-border transactions involving Korean enterprises.
Evercore Partners Inc. has entered into an agreement to acquire Lexicon Partners, an independent U.K.-based investment banking advisory firm, for about 86 million pounds in cash and Evercore shares, according to the company. The transaction is expected to close in the third quarter of 2011.
Bracewell & Giuliani LLP has announced that partner Glen Eichelberger and associate Brian Teaff, both formerly of Fulbright & Jaworski, have joined the firm's Houston office in its wealth management practice. Previously, Eichelberger served as a director at Merrill Lynch, where he was lead national relationship manager for Merrill Lynch's Family Office Services. Teaff has a background in tax issues and experience in matters before the Internal Revenue Service and the U.S. Department of Justice.
Since spinning off from Frost Bank in February 2010, Covenant Multifamily Offices has serviced more than 100 client families and reached its goal of $1 billion in assets under management, months ahead of schedule, according to the San Antonio, Tex.-based firm.
Archibald Cox Jr. on June 30 will step down as chairman of Barclays Americas to focus on a number of "outside interests," according to Barclays, which noted that Cox played a key role in Barclay's acquisition of Lehman Brothers' North American assets and was an instrumental part of the management team that guided the firm through the credit crisis. Cox joined the company three years ago after a career that included positions as CEO of Morgan Stanley International and president and CEO of CS First Boston Corporation.