A recent study of ultra wealthy investors, shows that in spite of the uncertain investment environment, their appetite for hedge funds has increased. The Chicago-based Spectrem Group study on ultra wealthy investors, i.e. those with assets of greater than $25,000,000 found almost 50% of them owned hedge funds. That was a significant increase from the 35% that owned hedge funds just 3 years earlier. The average net holdings was $4.6%.
Besides hedge funds, other alternatives investments gained in popularity as well. More than half, 56%, of households worth $25 million or more owned private equity, 44% had precious metals and 38% invested in commodities. In terms of the distribution of investable assets, alternatives comprise about 20% of overall holdings in an ultra wealthy client’s portfolio with traditional stock and bond investments making up made the remaining 80%.
In the management of their investment portfolios, the ultra wealthy often follow the investing trends of the sophisticated institutional investors. The trend for institutional investors is to increase the use of alternative investments including hedge funds in their investment portfolios and the ultra wealthy are just following suit.
The Bottom Line
Hedge funds and alternative investment are different from traditional investments and that explains much of their appeal and why they deserve a place in investment portfolios. Those who do not have them in their portfolios, should look seriously at including them.