A new survey of TIGER 21 members shows nearly half (46%) plan to increase allocations to cash, as well as to private equity (44%) in Q4 2014.
However, they’ll generally maintain their current holdings in currencies, fixed income, public equity, real estate, hedge funds and commodities—although increases in cash and private equity investments will cut into these categories, members weren’t sure which they’ll pull from going forward.
“The financial markets were challenging in the third quarter, especially with equity markets showing a lot of volatility,” says Michael W. Sonnenfeldt, founder and chairman of TIGER 21.
To date, TIGER 21 has about 300 members who have approximately $30 billion in combined investable assets. Most “prefer wealth preservation over the aggressive risk taking that wealth creation often entails,” adds Sonnenfeldt, since they’re “trying to make long-term investment decisions, and trying to avoid overreacting to [current news].”
The growing popularity of private equity was also evident in TIGER 21’s third-quarter asset allocation report. It revealed 22% of members, on average, are invested in that category today, compared to only 9% in early 2008.
And Sonnenfeldt suggests, “The increase in cash is interrelated to the increase in private equity. [Investors] are nervous about the economy and about public markets, and are therefore increasing cash allocations” so they have more flexibility to invest when opportunities come along.
Also, “to offset concerns…about the public markets—both in low-yielding debt and in the equity markets, [they’ve] turned to investments more in their control that will drive portfolio growth over time,” such as private equity.
Most often, members access that category through investing in their own companies, or through direct investments or funds. This is preferable because “shareholders are often the last to know when there’s a problem in a public company,” says Sonnenfeldt. “In a small private company, 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 [help] craft an effective solution.”
What’s more, the majority of private companies in Canada (81%) are striving for growth in 2015, finds a PwC report released today. That compares to just 2% that plan to exit the market over the same period.
That study adds more than half of private companies (52%) have set a growth rate of at least 7%, and nearly a quarter (22%) are aiming to achieve at least 15% growth over the next 12 months. Top strategies include: improving sales and marketing campaigns (47%); developing new products and services (40%); engaging mergers and acquisitions (38%); and enhancing the customer experience (33%).
The survey notes most (77%) invested in process transformation in 2014, with 70% of those reporting they realized their expected benefits.
Where to look for opportunities
When asked which sector is best to invest in over the next five years, TIGER 21 members predicted top performers would be real estate (26%), private equity (16%), and energy (12%). Other sectors mentioned were: technology; healthcare; gold and 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 members created their wealth by founding and operating their own companies, including real estate businesses,” Sonnenfeldt.
Further, “we’re not surprised to see energy-related investments mentioned, given shale exploration and the energy revolution is fueling the American economy.”
“The current economic environment and the investment landscape is as complex and challenging as [investors] have ever experienced,” he concludes. So make sure that whether clients have “done well or poorly, [they] know if that represents underperformance or outperformance relative to a realistic benchmark.”