Fleeing hedge funds, wealthy investors take shelter in real estate

Concern over high valuations and geopolitical risk pushes them back to basics.
JUL 19, 2017

Wealthy investors boosted bets on real estate and left hedge funds and equities as concern over high valuations and geopolitical risk push them back to basics. They had 33 percent of their portfolios on average in real estate at the end of the second quarter, according to a survey by Tiger 21 released Tuesday. That's a record since the group of high net-worth investors started measuring aggregate allocations in 2007. The average allocation of members in hedge funds fell to an all-time low of 4 percent. That compares with about 5 percent in the fourth quarter of 2008 in the midst of the financial crisis. Hedge funds have been under pressure from investors troubled by their high fees and poor performance. Michael Sonnenfeldt, founder of Tiger 21, said in an interview that the increase in real estate exposure is an "extraordinary move" that's taken place as investors have shifted out of hedge funds and stocks. Poor returns from fixed income and concern about geopolitical risk also contributed to the move, he said. "Our members are most comfortable with assets they can have direct ownership of. They can own a building or a part of a small company," Sonnenfeldt said, adding that many Tiger 21 members made their money in real estate and private equity. "When you have such a low ability to produce returns you go to income-producing assets." The Tiger 21 survey differs from a more optimistic report on hedge funds last week from Credit Suisse Group AG that showed allocators intended to increase investments in hedge funds over the next six months. Tiger 21's network includes members with assets of about $10 million to $1 billion, and represents a combined $51 billion. The survey represents responses from about a quarter of the group's 520 members, Sonnenfeldt said.

Latest News

Wealth Enhancement adds $592M Chicago-area RIA
Wealth Enhancement adds $592M Chicago-area RIA

The mega-RIA with roughly $160 billion in client assets remains firmly in acquisition mode amid rumors of private equity giants vying to scoop it up.

Annuity sales hit a record as war and Fed jitters redraw fixed income
Annuity sales hit a record as war and Fed jitters redraw fixed income

Record annuity demand for principal protection collides with the most hawkish Fed dissent since 2016.

Allworth deepens tax-advisory push with $1.1B Sachetta acquisition
Allworth deepens tax-advisory push with $1.1B Sachetta acquisition

The PE-backed RIA makes its first major move since bringing in a new capital partner, adding a Massachusetts advisory firm alongside a second East Coast RIA

Hightower Signature Wealth grows by $2.5 billion with Stearns deal
Hightower Signature Wealth grows by $2.5 billion with Stearns deal

Stearns Financial Group's addition brings 30 advisors and three decades of North Carolina planning experience to the platform.

Edward Jones backs senior protection rules after $3 million account freeze
Edward Jones backs senior protection rules after $3 million account freeze

An 86-year-old from Dallas tried to withdraw funds from his account, but Edward Jones invoked a FINRA-backed temporary lockout before he eventually left for Merrill Lynch.

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income