Filed Under:Life Insurance, Life Planning Strategies

Fiscal Cliff, Poor Returns Push Wealth into Alternatives: Spectrem

UHNW investors move aggressively to protect assets

Uncertainty about the year-end fate of the Bush tax cuts and unsatisfactory investment returns are driving wealthy investors to seek higher performance in alternative investments as they act aggressively to protect their assets, according to a new study by Spectrem Group.

Spectrem researchers surveyed 201 individuals with at least $25 million in net worth during June and July.

They found that alternative investments, at 25% of total investable assets, made up a growing portion of the investment portfolios of these investors, compared with 20% in 2010 and 16% in 2007.

For example, 47% of respondent households owned hedge funds and 45% owned venture capital. Stocks and bonds, including restricted stock and options, accounted for 18% of their total investments, down from 20% in 2010 and 21% in 2007.

Spectrem said 107,000 U.S. households had at least $25 million in net worth at the end of 2011. Less than one-third of these had inherited their wealth, while 27% were business owners. More than half were still working, and another 21% were semi-retired.

With a mean age of 60 and 38% younger than 55, these wealthiest investors were also younger on average than high-net-worth investors, who had net worth between $5 million and $25 million and a mean age of 67, and millionaire investors, with net worth of $1 million to $5 million and a mean age of 63.

“After the slow growth of the past few years, coupled with the potential of a sizable tax hit, the vast majority of these wealthy investors are seeking outsize investment returns,” Spectrem Group president George Walper said in a statement. “At a minimum, they expect their investment returns to exceed the overall market return.

“But many are considerably more aggressive, with more than one-quarter saying they expect to make an annual rate of return of at least 16%. In particular, 11% expect returns greater than 25%.”

Spectrem found that the investors it surveyed were taking an offensive strategy toward taxes. Sixty percent were investing in tax-free bonds, 59% were revising their estate plans and 55% were meeting with tax planners.

Nearly one-quarter said they were considering a change of legal residence to a state without a state income tax. Forty-seven percent were increasing their charitable contributions, and 28% were buying tax-advantaged life insurance.

See also:

Alternative Investments Run Hot and Cold

Battle Lines Drawn on Bush-Era Tax Cuts

Estate Planners: 5 New Taxes to Watch

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Nichole Morford

Nichole Morford
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