The wealthy customer is a peculiar breed in banking. They are coveted by all the major banks and financial institutions, and seemingly have the knowledge and wherewithal to be educated on and profit from the best opportunities. Due to their wealth, they are also able to often reject the charges and fees banks and brokerage firms would normally charge customers, since every bank is going after the same group of millionaires.
Hedge funds particularly cater to the wealthy, since in the United States only SEC registered investors are able to invest in them, which the wealthy qualify for. One would think that the poor hedge fund performance of 2009 would send investors running for the hills, but based on recent research, quite the contrary is occurring.
A survey from Spectrem Group shows that nearly 50% of all households surveyed with $25 million or more in net worth had investments in hedge funds in 2010. Before the depths of the financial crisis, just 35% of such households had hedge-fund investments when measured in 2007.
George H. Walper Jr., President of Spectem Group recently commented: “While hedge funds have gotten something of a black eye in recent years, the nation’s wealthiest investors have not been scared off. With their exposure to private equity and venture capital also is exceeding 2007 levels, it appears the richest Americans are not afraid to accept a little risk to help expand their portfolios.”
According to the Merrill Lynch/Capgemini World Wealth Report, hedge funds in 2008 accounted for 24% of the alternative investments in millionaire investment portfolios, down from 31% in 2007. The decline came as “as the hedge fund industry posted its worst-ever performance and the wealthy shifted to more traditional investment vehicles,” the report said.
Perhaps the return to basics we saw after the 2008 financial crisis has now ended, and investors are once again thirsting for the returns promised by hedge funds. Investors may be characterized as risk averse, but the drive to make back losses in portfolios must be overcoming this.
