The nation’s rich making the shift to private equity and real estate
- July 1, 2023: Vol. 10, Number 7

The nation’s rich making the shift to private equity and real estate

by Jonathan Spitz

How do the wealthy invest today, and what can we learn from them?

While there is no single approach, there are lessons to be learned from how high-net-worth (HNW) investors manage their wealth and transfer it to future generations. From traditional stocks and bonds to commercial property and other alternative investments, how the wealthy invest — particularly during uncertain economic times — can provide lessons in not just preserving wealth but growing it.

Currently, 62 percent of wealthy investors are baby boomers, with Generation X at 20 percent and millennials and the silent generation at 9 percent each, according to a 2022 report by Bank of America on wealthy Americans with more than $3 million in investible assets.

There is no single investment approach among the rich, but some generalities do apply. Historically, HNW investors have allocated around 50 percent of their assets to stocks, 20 percent to bonds, 25 percent to alternatives and 5 percent to cash, KKR reported in 2021. However, alternatives have begun to claim more of the HNW portfolio during the past 10 to 15 years, as the wealthiest investors have allocated around 30 percent to stocks, 10 percent to bonds, 50 percent to alternatives and 10 percent to cash.

According to Bank of America, the generational shift shows portfolios with a higher percentage of real estate, private equity and other alternatives. Young, wealthy investors allocate three times more to alternative investments and half as much to stocks. These younger households with early wealth are more likely than older households to have started with an inheritance or achieved atypical private market success from startup, crypto or other ventures. Their extraordinary circumstances may lead them to favor nontraditional alternative or private equity investments.

Notably, the allocation to real estate and other alternatives seems to be positively correlated with the amount of wealth someone has. In a 2021 Ernst & Young survey, 29 percent of HNW households and 81 percent of ultra-high-net-worth households rely on alternatives in their portfolio, compared with only 14 percent of mass affluent households.

This article was excerpted from an Origin Investments report written by Jonathan Spitz, assistant vice president of investor relations at the firm. Read the complete article here.

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