European millionaires increase alternatives

18 June 2014

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PA Europe

The portion of their wealth that European high net worth individuals (HNWI’s) with at least $1mn in investable assets allocate to alternative investments increased from 9.1% of their portfolio in Q1 2013 to 13.6% a year later. Private equity and structured products, including multi-asset funds, are the most popular alternative investments. They both account for a fifth of the total. European HNWIs’ investments in hedge funds comprise roughly 13% of total exposure to alternatives.

Alternative investments are by far the fastest growing asset class among European HNWI’s, though allocation to fixed income and equity also increased slightly, at the expense of cash and real estate (see figure). The increasing popularity of alternative investments corresponds with fund selector data gathered by EIE. Appetite for absolute return has been strong for the past couple of years, with buyers consistently outnumbering sellers (see graph right at the bottom of the article).

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Home bias declining rapidly

HNWI’s asset allocation trends in the rest of the world are quite similar to those in Europe, though equity allocation as a proportion of total investments surprisingly decreased in the US and Asia. The research showed that millionaires, just like less wealthy investors, still have a strong home bias, though the percentage of assets held abroad increased from 25% last year to 36.6% now. European HNWI’s now even hold roughly 40% of their portfolio outside the continent, an increase of 15 percentage point from a year ago.

Risk-on

The asset allocation trends among HNWI’s surveyed by Capgemini reflect general investment sentiment, which has turned more risk-prone following last year’s promising returns on the equity market. Ultra-HNWI’s, those with more than $20mn in assets, showed the most radical sentiment shift globally. While 45% of them said a year ago that their primary investment objective was to preserve their wealth, this has gone down dramatically to less than 28%.

“Ultra-HNWI’s often lead a shift in investment sentiment, as they have an expanded range of investment options at their disposal which makes them better placed to anticipate on trends,” said Bill Sullivan, Global Head of Market Intelligence for Capgemini.