Tiger 21 members prefer wealth preservation over the type of “aggressive risk taking” that wealth creation often entails, said Michael Sonnenfeldt, the organization’s founder and chairman.

Members of the exclusive TIGER 21 high net worth peer network prefer wealth preservation over the type of “aggressive risk taking” that wealth creation often entails, said Michael Sonnenfeldt, the organization’s founder and chairman.

“Our members are trying to make long-term investment decisions, and trying to avoid overreacting to the ‘news of the day’ so they can focus on prudent moves with their money for the long term,” Sonnenfeldt said in response to the organization's latest Looking Forward Portfolio Survey.

Some 290 TIGER 21 members – representing $30 billion in investable assets on aggregate – were surveyed in September and asked about the changes they were planning to make in their portfolio in the quarter ahead.

The majority said they would boost their allocation to cash (46 per cent) and private equity (44 per cent), while most don’t plan to alter their allocations to currencies, fixed income, public equity, real estate, hedge funds and commodities. Sonnenfeldt highlighted that the financial markets were challenging in the third quarter, particularly given the volatile equity sector.

“Of importance to note, is that although the increases in cash and private equity must come at the expense of other allocations, it did not appear there was any notable consensus about which allocations would be reduced to fund these increases, suggesting that the reductions would be generally less targeted and on average across the board,” TIGER 21 said.

Members’ planned increase in allocation to private equity shown in this survey is in line with the recent quarterly Asset Allocation report, which provided a snapshot of how members allotted their investment portfolio in the prior period. TIGER 21 said private equity remains a focal point of many members’ investment portfolio, now representing 22 per cent compared to just 9 per cent in early 2008.

Meanwhile, Sonnenfeldt said the projected increase in cash is “interrelated to the increase in private equity,” as some members are nervous about the economy and public markets, therefore positioning themselves for maximum flexibility when the next opportunity surfaces.

“To offset concerns members have about the public markets – both in low yielding debt and in the equity markets - members have turned to investments more in their control that will drive portfolio growth over time [private equity],” Sonnenfeldt added. “Whether through their own companies, direct investments or funds, private equity provides them with investments they understand and members are confident will generally produce favorable returns.”

He added: “Just as importantly, when there is a problem in a public company the shareholders are often the last to know, while in a small private company our members find they can help solve the problems growing companies run into if they are informed soon enough, and this lets them bring their many years of experience to bare to help craft an effective solution. In effect, by increasing their private equity and cash exposure, members are creating a barbell hedge.”

Indeed, the trend of family offices and other accredited investors engaging in the world of direct investing is intensifying: according to a 2012 study by the Wharton Global Family Alliance, average portfolio allocations by single family offices to direct investments rose from 6 per cent in 2009 to 11.4 per cent in 2011 (see a feature on the subject here.)

Members were also asked to name the sector they'd be most inclined to invest in over the next five years, in response to which over 26 per cent cited real estate, followed by private equity and some type of energy investment, at 16 and 12 per cent respectively. Other investment areas mentioned by more than one member included technology, healthcare, gold/silver, public equities and various hedge fund strategies.

“The prevalence of real estate and private equity responses could be directly related to the fact that many TIGER 21 members created their wealth by founding and operating their own companies, including real estate businesses, and they know those businesses and remain comfortable with those asset classes,” Sonnenfeldt said. “We are not surprised to see energy-related investments mentioned either, since shale exploration and the energy revolution is fueling the American economy.”

TIGER 21 is an acronym for The Investment Group for Enhanced Results in the 21st Century; members include entrepreneurs, inventors, fund managers and top executives. The organization is headquartered in New York City and has groups in Atlanta, GA; Austin, TX; Chicago, IL, Dallas, TX, Los Angeles, CA, Miami, CA, New York, Palm Beach, FL, San Diego, CA, San Francisco, CA, Seattle, WA, Tysons Corner, VA, and Washington, DC as well as Canadian groups in Calgary, Montreal, Toronto and Vancouver. 

“Our process helps members to better navigate in a turbulent environment,” Sonnenfeldt said. “It is important to have a realistic expectation of what others are earning, or losing. So, whether you have done well or poorly, you know if that represents underperformance or outperformance relative to a realistic benchmark.”