Wealthy investors are holding less cash than at any time in nearly two decades as they plough capital into private markets, new data suggests.
Cash and equivalents have dropped to a record low of 7 per cent of portfolios among members of TIGER 21, a global network of almost 2,000 ultra-wealthy individuals who collectively manage $200 billion in investable assets.
Meanwhile, private equity allocations have reached a record 34 per cent and public equities have risen to 25 per cent.
Related
Separate UK research commissioned by Investec and seen exclusively by Spear’s, surveyed 201 high-net-worth individuals with estimated net worths of at least £3 million and annual incomes of £300,000. It found that nearly 82 per cent said their wealth had become more illiquid over the past five years.
The rise in private equity reflects fresh investment in long-term private-market opportunities, ongoing capital calls from existing funds and fewer private equity exits, according to TIGER 21.
Content from our partners
Michael Woods, the network’s group chair, said the conversation among members ‘has steadily moved toward private markets’.
‘Members are leaning into areas where their experience, networks, and operational expertise can be put to work, and that helps explain the long arc of capital moving from cash and real estate into private equity.’
Michael Sonnenfeldt, founder and chair of TIGER 21, said: ‘When uncertainty rises, these investors don’t freeze. They deploy capital into the opportunities they believe will create advantage and long-term growth. That’s why we’re seeing more capital move into private equity and similar assets.’
But fewer private equity exits – when private equity funds sell investments and money is returned to investors – can mean investors wait longer to get their capital back.
Wealthy investors borrowing for liquidity
Investec told Spear’s it is increasingly seeing a ‘mismatch’ between clients’ overall wealth and their ready cash, which can become more apparent when large costs arise, such as tax bills or school fees.
‘We have seen high-net-worth clients make greater use of lending secured against their liquid investment portfolios over the past few years,’ said private banker Cameron Atkinson.
‘Increasingly, clients are arranging credit facilities before they need to draw on them, as part of their wider liquidity planning. This gives them access to capital without having to sell long-term investments at an unattractive time.’
Atkinson said that the illiquidity issue was particularly relevant to private equity professionals, founders and family offices, whose wealth can be tied up in private companies, funds or property.
A liquidity issue, or a portfolio problem?
Investec, which provides portfolio-backed lending, argues that this does not necessarily indicate financial pressure, but rather is an issue of ‘careful balance-sheet management’.
But advisers at independent investment firm CapGen question whether demand for such lending reflects portfolios with too much capital committed to illiquid investments.
It told Spear’s its own clients had not seen a significant reduction in cash holdings because of how the firm manages their exposure.
‘It’s worth considering how much of the cash reduction is client-led and how much is being stoked by products being sold to investors to help them bridge a gap created by a poorly constructed private equity portfolio,’ said managing partner Khaled Said.
He added that investors are generally experiencing more calls on cash, which in some cases is slowing further allocations to private equity, or nudging them towards the secondaries market to sell existing holdings.
