Ultra-high-net-worth investors have confidence in the global and domestic equity markets, according to the Institute for Private Investors annual Family Performance Tracking survey.
Sixty-three percent of respondents say they plan to increase their allocation to global equities this year and 53 percent plan to increase their holdings in domestic equities, according to the survey, released yesterday.
Wealthy families also are returning to the goal of growing their wealth rather than just preserving it, according to the survey. Growth is the main goal of 51 percent of the respondents, up 4 percentage points from last year. This year, 36 percent said principal protection was their primary goal, compared to 43 percent who felt that way last year.
The IPI survey explored the asset allocations and expectations of 69 ultra-high-net-worth families that are members of IPI, which is a subsidiary of Campden Wealth. IPI provides investment education and networking resources for members, who have at least $30 million in assets.
“This year’s survey shows that the emotional climate of ultra-affluent investors is marked by a feeling that the time is right to get off the sidelines and start focusing on rebuilding wealth lost in the Great Recession,” says IPI President Mindy Rosenthal.
Increases are expected to be made in private equities this year by 40 percent of the respondents, while only 7 percent plan to decrease allocations. At the same time, 42 percent of respondents say they plan to decrease cash allocations in 2013, 37 percent will decrease allocations to municipal bonds, and 44 percent will decrease taxable bonds.
The idea of creating wealth through ownership in a private company has been steadily gaining favorability since the sharp market dislocation of 2008, according to IPI. While presently representing an average 2 percent of the portfolio allocations, 30 percent of those surveyed say they plan to increase allocations to direct investments.
Given the performance issues, tax inefficiency and high fees, respondents are mixed on plans for hedge funds, says IPI, with 22 percent planning to increase their allocation and 28 percent planning to decrease it.
In order to deal with the tax issues that presented themselves at the end of 2012, the ultra wealthy took steps to realize capital gains by the end of 2012 and to create or alter estate planning vehicles, IPI says. To manage taxes, investors rely on tax loss harvesting (62 percent), asset allocation (47 percent) and family limited partnerships (41 percent).
IPI members posted strong positive returns for 2012, reversing the downward trends of the previous years, according to the survey. The average return net of fees was 10.08 percent in 2012, up from 0.58 percent in 2011.