InvestmentsDec 21 2015

High net worth investors shift focus towards alternatives

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High net worth investors shift focus towards alternatives

High net worth investors are shifting their attention towards alternatives in the current low-yield environment, according to new research from family office Stonehage Fleming.

The firm conducted interviews with 78 families and advisers, representing wealth of £120bn, outlining challenges in the transfer of wealth across generations.

Partner at Stonehage Fleming Ian Marsh explained that the findings suggest a subtle but significant shift in attitude by the clients in the long term management of their wealth and their legacies.

“As families grow and the number of people these assets need to provide for increases, high net worth families are becoming more entrepreneurial and are increasingly willing to shoulder a greater degree of risk in order to access this elusive growth.

“In addition to the principal assets of their family businesses, families are turning to alternatives, notably real estate, agricultural land and private equity, as well as publicly listed equities.”

Real estate remains the asset class of choice followed by equities and private equity, with 78 per cent of respondents saying they would choose to hold property and agricultural land, while 67 per cent said they would hold equities as part of a long-term strategy.

Emerging market equities have fallen from grace, having been the most favoured asset class in the 2013 report.

Meanwhile, 72 per cent respondents listed capital preservation in their top three concerns, with capital appreciation (57 per cent) being the joint second most frequently listed concern.

Speaking to the ‘next generation’ of younger investors in the survey, they were far more bullish on alternatives and hedge funds, with 43 per cent choosing to hold them, compared to 26 per cent of their parents.

Anxiety about not having enough income varied significantly, with 57 per cent of the younger group citing it as a concern, compared to just 34 per cent of the current heads of families.

Poor investment management was the top issue for the next generation, with over half citing this in their top three concerns, against only 21 per cent of core respondents.

Family disputes and breakup were seen as the principal risks to long term wealth, while higher taxes were acceptable provided tax rates were not a disincentive to wealth creation.

Mr. Marsh commented that to achieve their goals, it is important that the high net worth investor imposes a disciplined, strategic investment approach to investing for the long-term if they are to have a wealth strategy for intergenerational success.

peter.walker@ft.com