High Net Worth TIGER 21 Investors Pull Out Prudent Stops in Latest Asset Allocation Survey -- Discipline Prevails, Cash is King, No Rush to Flee Equities
NEW YORK (April 3, 2008) – Facing one of the grizzliest bear markets in recent memory, investors looking for fresh guidance might consider new data from high net worth learning group TIGER 21, whose members have been making their own hard assessments about portfolios buffeted by subprime mortgages, a weakening dollar, falling real estate values and other ill winds.
TIGER 21, whose nearly 160 members nationally maintain investable assets of approximately $10 billion, has issued its latest Asset Allocation Index, providing a snapshot of how America’s most affluent, market-savvy investors are weathering the storm. Without panic, but with plenty of prudence, TIGER 21 reports its members have largely held the course on conservative distribution of assets that was in play even before the recent downturn, in keeping with the group’s core belief in wealth preservation over aggressive accumulation.
Rather than drastically overhaul their holdings, TIGER 21 members have taken steps to bolster cash reserves and limit exposure to certain assets – especially real estate – that could be most severely tested in a prolonged slump. They’ve actually held the line on public equities, though at levels still well below those typically recommended by most financial advisors, while slightly reducing their appetite for private equity and hedge funds. Further reflecting a cautionary outlook, members maintain a high percentage of fixed income securities that guarantee steady income.
“Given the upheaval in so many markets over the last several months, we frankly expected to see even more rebalancing of our members’ portfolios than the latest Index indicates,” said TIGER 21 founder and chair Michael Sonnenfeldt. “What’s most revealing is that the basic mindset that existed in the wake of 9/11, with increased emphasis on security, liquidity and conservation of assets, is even more pronounced now, with a different set of economic threats affecting investment decisions.” He noted that two-thirds of members describe their investment approach as balanced or leaning toward conservative, a tendency borne out by the new asset allocation survey.
31% in Public Stocks; 23% in Real Estate
Not that TIGER 21 members are mattress stuffers. Public stocks still make up the largest single class of member assets at 31%, one percentage point above their level in 2006 at the height of the bull market just ended. “Given other alternative assets available to affluent investors, that 31% represents a relatively low allocation now as it was two years ago, but it shows that the high net worth community has not given up entirely on the public markets,” Mr. Sonnenfeldt said. “No matter the current gloom hanging over most stocks, public equities still represent the bedrock engine for building wealth and there are plenty of solid companies that continue to merit long-term commitment, no matter what bad news is out there today.”
Real estate holdings form the next largest bucket of TIGER 21 member assets at 23%, a substantial portion but a drop of 5% since 2006. Investable real estate assets slipped to 14% while personal property dropped to 9% of overall allocation. “Many of our members have substantial experience in this class and have both the fortitude and acumen to ride out the current crunch which by no means is impacting all properties and all markets uniformly,” said Mr.Sonnenfeldt, a former successful commercial developer in the New York market who was responsible for the Harborside Financial Center project in Jersey City. “The five percentage drop in allocation among our members should probably translate into a more sizable reduction for the average investor.”
Income and Liquidity: Fixed Income/Cash Comprise 28% of Assets
Fixed income represents 15% of the average TIGER 21 portfolio, followed by a cash reserve of nearly 13% - the latter a 3% increase over 2006. “Clearly, our members, nearly all of whom are first generation wealthy who staked their own claims, favor liquidity – both in generating consistent income from their investments, as well as maintaining a high percentage of available cash,” Mr. Sonnenfeldt said. “In the current environment, that old-school approach may be applicable for any investor weighing which way to go.”
He added that investors should be particularly wary of investments touted as “cash equivalents” that may not have the protection of true liquid assets. “The current freeze-up of the auction rate securities market is a cautionary reminder that in an unsettled environment, there is no true ‘equivalent’ of cash but cash itself, backed by the faith and credit of the U.S. government as opposed to a closed-end mutual fund,” he explained.
Collective Intelligence Enhances Alternative Asset/Private Equity Investments
TIGER 21 Members still take significant advantage of alternative investments, with 11% carved out for hedge funds, venture capital, fund-of-funds and other vehicles generally geared for high net worth investors. “The high-profile collapse of some hedge funds has made for great headlines but it hasn’t diminished the investment worthiness of well-managed firms, including those that may have been bearishly betting against the mortgage market, as well as those utilizing sound risk management,” Mr. Sonnenfeldt said.
“Alternatives also represent an asset class where we feel TIGER 21 is uniquely advantaged, because of our ability to draw on the collective intelligence of a large network of like-minded members and co-investors for unbiased advice and due diligence on which funds and which firms are up to snuff,” he added. “Having a sophisticated, peer-based circle of friends makes a huge difference in sorting out non-traditional investment opportunities.”
The same holds true for private equity, where TIGER 21 members target 7% of their holdings, down two percentage points from 2006. “It doesn’t take a PhD in economics to know that the buyout market is really pinched at the moment, given the pull-back in bank lending and the sluggishness of so many business sectors,” Mr. Sonnenfeldt said.
“We hope that 7% represents where the smart money is headed, since this is a time when the best private investors – and there are many who present regularly to our membership – see outstanding opportunities for discounted companies with tremendous long-term potential,” he added. “If the financing is available, a new round of private equity plays will pay off royally in the years ahead. Hopefully, our reliance on shared intelligence puts members in that fortunate group.” He noted that member contributions to P.E. split evenly between direct investments and private equity funds.
Peer-Based Investor Network
TIGER 21 includes a cross-section of serial entrepreneurs, Wall Street professionals, money managers and corporate executives who meet monthly in small group settings to share investment advice and personal experiences. Groups conduct regular portfolio defenses where members challenge one another on their investment choices. Members also tap into a secure online forum where they can pose questions and obtain advice on specific investment and lifestyle issues – including real-time exchange in response to market gyrations and other events. TIGER 21 has chapters in New York, where the organization launched in 1999, as well as California, South Florida and Texas.
Here are other highlights of TIGER 21’s latest Asset Allocation Index:
Staying Liquid – At just under 13% per portfolio, TIGER 21 members maintain higher cash averages that most financial advisors generally recommend. “There is a trade-off our members are willing to make in terms of sacrificing some potential upside to ensure liquidity and especially peace of mind,” Mr. Sonnenfeldt said. “Our own internal data suggest members – who no longer receive substantial income from former employers, or profits from active businesses – tend to live on approximately 3% of their assets each year. When their lifestyle is dependent on income from passive investments, these new figures provide rather startling evidence that members are now carrying reserves of more than fours years living expenses in cash alone so as to be prepared for almost any conceivable financial threat.”
Incoming Income – The bias toward wealth preservation is evident in the ratio of assets that members devote to fixed income instruments. Treasuries, municipal bonds, high yield, and emerging market debt made up a robust 15% of the average TIGER 21 portfolio, with a majority reserved for the safety of Treasuries and municipal bonds.
Real Estate Pull-back – TIGER 21 members may have been ahead of the curve in anticipating a decline in real estate values, many saying they began to reduce their holdings more than a year ago. In the new Index, personal real estate accounted for 9%, down from 12% in 2006, while investment real estate assets decreased to 14% from 16 % in 2006. Because the latest Index reflects a higher number of members, it is unclear whether the reduction in real estate allocation represents actual sales or reduced valuation by existing members, or lower incoming allocations by new members. But the evidence clearly indicates a lower appetite for real property in the current market.
Not a Stock Pickers' Club – Most notable about the 31% that TIGER 21 members hold in shares of public companies is that it’s about on par with the 30% reported at the end of 2006. “Although we have plenty of astute stock pickers in our group, our members are not day traders playing the market – most of us were quite light on equities during the recent market swell and we’ll remain light now that the tide has gone out,” Mr. Sonnenfeldt said.
International Bets – Member stock selections cover a broad spectrum of categories, including emerging markets. Notably, a third of their equities are in international stocks. “Right now, foreign equities are mostly a currency play against the weak dollar, and members report that much of their domestic holdings are in companies that derive significant revenue from non-U.S. markets,” Mr. Sonnenfeldt said.
Comfortable with Alternatives – Taking advantage of an available pipeline for private, non-traditional investments, 56% of TIGER 21 members have some type of alternative holdings; add in investment real estate and the total increases to 81%. “It’s certain that our members are comfortable with alternative investments – especially hedge funds – as a direct reflection of the shared intelligence they receive with others in the group,” Mr. Sonnenfeldt said. “It’s true that membership has its rewards – in our case, the biggest reward is honest, unvarnished information on investment decisions.”
Self-Directed – TIGER 21 members prefer a hands-on approach to portfolio management, which is not to say they go in and out of assets on daily or even weekly basis. Three-fourths of members review their portfolios at least four times a year. “Our M.O. is ‘Active managers of passive investments,’” Mr. Sonnenfeldt explains, adding that the group’s regular portfolio defense meetings are the prime means by which members conduct a thorough self-analysis of their holdings. “Even in bull markets, the portfolio defense is a highly challenging exercise – you can imagine the soul-searching that is accompanying member defenses in the current market.”
Measuring 2008 Risk – An overwhelming 87% of TIGER 21 members predicted that the remainder of 2008 would pose above-average investment risk; a sanguine 10% saw no appreciable difference this year than last, whereas a super-bullish 2% foresaw below-average risk through this year. Topping the list of member concerns were continued turbulence in public equities, pressure on real estate valuations and falling interest rates. Mr. Sonnenfeldt noted that the group’s intranet discussion board has been burning with viewpoints on recent events, from the near-death experience of Bear Stearns to the Treasury’s proposal for policing the securities markets. “As an organization, we do not endorse particular investments or favor an investing style,” he said. “In fact, there are probably as many different investing styles as there are members. While everyone’s situation is unique, members can always glean new and valuable information from their peers.”
About TIGER 21
TIGER 21 is the nation's premier peer-to-peer learning group for high net worth investors. Building on shared collective intelligence, TIGER 21 members seek to enhance investment returns while limiting their investment risks toacceptable levels. There are currently sixteen TIGER 21 learning groups, representing more than 150 investors, with investable assets approaching $10 billion. Founded in New York, TIGER 21 now has investor groups in New York,California, Florida and Texas. For more, visit http://www.tiger21.com
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