Appetite For Alternative Assets Surges
Thursday, October 14, 2010

Private banks are reporting a significant rise in appetite amongst their high net worth clients for alternative assets, with their average portfolio allocation increasing by over a half to 25% from 15% in 2009, new research reveals.

According to Hotbed, a UK private investor syndicator, this increase represents ever-growing confidence amongst high net worth individuals about the prospects for investment in alternative assets including private equity, commercial property and hedge funds.

Gary Robins, Chief Executive of Hotbed, comments:

“Risk appetite amongst private investors appears to have bounced back.”

“As confidence is gradually returning across the economy, investors have realised there are really attractive investment opportunities on the market at very low valuations.”

“Whilst some doubts remain about the possibility of a double-dip, now could be the ideal time to invest in alternative assets such as unlisted and growing businesses that have proven they are profitable because their value will still be low compared to the soaring prices seen pre-recession.”

“Historically, the period after a recession has proven to be a very successful time to invest in unquoted companies.”

The research also reveals that 44% of private banks expect to raise their recommended allocation to private equity in the next 12 months, up from 33% last year.

Robins comments: “Understandably, the recession led to many wealthy investors scaling back on their riskier holdings, or waiting until the economic situation became clearer. The message we are hearing now is that whilst the economy is by no means out of the woods just yet, the opportunities currently available are enticing savvy investors hungry for a solid yield and the potential for capital growth.”

Hotbed says that the hands-on approach by the clients of private banks reflects the fact that they come increasingly from an entrepreneurial background. 67% of the private banks surveyed by Hotbed expect to see more clients that are entrepreneurs in the next three years.

Robins adds:

“As more and more self-made businesspeople decide to invest their wealth it makes perfect sense that they will not want to hand over their hard-earned cash to discretionary fund managers, which means that they have no opportunity to decide what they do or do not invest in.”

“From our own growing client base we know that these investors also want alternative investment opportunities which are not available through a conventional fund structure.”

“Many of these clients at private banks are, much like our own investor members, experienced individuals who often like to invest in sectors where they feel their own particular experience will give them an advantage.”

“As a result, they want to retain a level of direct involvement in at least a substantial part of their investment portfolio.”

The research from Hotbed also shows that private banks do not expect to see any let up in the UK’s ability to create high net worths.

58% of private banks surveyed said that they expect both the number and total wealth of UK-based high net worth individuals to increase in the next year, with 100% expecting to see a rise in the next three years.

Robins continues:

“The UK’s High Net Worth community is bouncing back strongly from the recession.”

“The government has to be careful to avoid alienating HNWs, but private banks are saying they are confident that the UK will remain a HNW-friendly jurisdiction.”

The research conducted amongst 12 leading private banks including SG Hambros Private Banking, HSBC Private Banking and Investec.