Sensing a market bottom, wealthy investors are moving back into stocks

If wealthy individual investors represent the so-called smart money, a turnaround for the public equity markets might be around the next corner.

Results of the July survey from Tiger 21, a 1,150-member investment organization made up of high-net-worth entrepreneurs, shows a suddenly bullish outlook for stocks, real estate and private equity.

“Over the last year with the downturn in the stock market, public equity has become more attractive,” said Michael Sonnenfeldt, chairman of the exclusive membership organization.

While politicians haggle over the definition of a recession and the Federal Reserve continues to hike interest rates to try and combat inflation, the S&P 500 Index is down about 13% from the start of the year.

Sonnenfeldt said Tiger 21 members have been responding to inflation and threat of recession with a steady diet of real estate, private equity and public equities, in that order. But the July survey results showed what he described as a “remarkable change.”

Public equities, at 27%, moved to the top of the asset allocation list, followed by real estate at 25%, and private equity at 24%. The next highest allocation was cash at 11%.

To Sonnenfeldt this looks strikingly similar to the way Tiger 21 members were allocating assets in early 2009, following the financial crisis and ahead of the March 2009 market bottom.

“The most important piece of this survey is that real estate had been our largest investment for a decade, and public equity had been in the low 20%,” he said. “The question is, why has public equity investing surged at a time when the market has had so much trouble?”

Sonnenfeldt recalls the rally off the market bottom in March 2009 as a rare period for financial markets when the illiquidity premium typically associated with private equity was overshadowed by the public equity markets.

“We all grew up being told private equity outperformed public equity because of the illiquidity premium, and historically that has been true,” he said. “But for a period of about a year in 2009 public equity outperformed and had the benefit of liquidity.”

Sonnenfeldt is interpreting the survey data as a potential repeat of that rare period that kicked off the start of a 12-year bull market for stocks.

“Our members, who generally favor smaller private companies, are saying there are better deals in the stock market than they’ve seen in a long time,” he said. “It’s more accurate to say our members collectively try to stay away from the predicting business, but thinking about the different scenarios, a growing number are more confident in the market.”