Wealthy Investors Cash Out Of Hedge Funds/Stocks To Bet On Real Estate
This Bloomberg article highlights a trend I’ve been observing among many of my clients, especially those investing in CRE in the $10 million to $20 million range. The article discuses how wealthy investors boosted bets on real estate in the first half of 2107 and exited hedge funds and equities. They have been pushed back to basics due to concern about high valuations and geopolitical risks.
According to the article, investors had 33 percent of their portfolios on average in real estate at the end of the second quarter, according to a survey by Tiger 21. That’s a record since the group of high net-worth investors began measuring aggregate allocations in 2007.
The average allocation of members in hedge funds fell to an all-time low of 4 percent. That compares with about 5 percent in the fourth quarter of 2008 in the midst of the financial crisis. Hedge funds have been under pressure from investors troubled by their high fees and poor performance, Bloomberg reported.
Michael Sonnenfeldt, founder of Tiger 21, told Bloomberg that the increase in real estate exposure is an “extraordinary move” that has taken place as investors shift out of hedge funds and stocks. Poor returns from fixed income and concern about geopolitical risks also contributed to the move, he said.
“Our members are most comfortable with assets they can have direct ownership of. They can own a building or a part of a small company,” Sonnenfeldt said, adding that many Tiger 21 members made their money in real estate and private equity. “When you have such a low ability to produce returns you go to income-producing assets.”
The Tiger 21 survey differs from a more optimistic report on hedge funds last week from Credit Suisse Group AG that showed allocators intended to increase investments in hedge funds over the next six months.
Tiger 21’s network includes members with assets of about $10 million to $1 billion, and represents a combined $51 billion. The survey represents responses from about a quarter of the group’s 520 members, Sonnenfeldt said.