The rich are increasingly enamored with private equity investing, but their rising allocation to PE funds doesn't mean they're cutting back on stock or cash allocations, according to a new survey of ultrawealthy investors by Tiger 21, a peer-to-peer network of high net worth individuals.
The 265 members polled-with investable assets of more $25 billion-increased their private equity allocations to 22 percent of the average portfolio during the second quarter of 2014, according to Tiger 21. That matches the record in PE during the first quarter of 2013 and the most significant allocation increase since Tiger 21 began tracking member portfolios in 2007.
The report comes after a decade of strong private equity performance. PE returns averaged 13.9 percent net of fees from 2003 to 2013 and outperformed the S&P 500 with dividends by 6.5 percentage points, according to a new report from industry trade association Private Equity Growth Capital Council.
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The move to PE, however, doesn't mean a flight from stocks or cash, a negative indicator on economic sentiment. Tiger 21 members' stock allocation only decreased 1 percentage point over last quarter to 23 percent, keeping in the 23 percent to 24 percent range for eight consecutive quarters. Cash holdings also rose only slightly to 11 percent, in line with averages over the last five quarters.
"Tiger 21 members have kept a considerable presence in public equities, but have shown a greater appreciation for private equity investments, particularly direct investments where they can create long-term value in companies," said Thane Stenner, managing director and founding member of Tiger 21 Canada. "In addition to a matching allocation percentage, at 22 percent, real estate is also favored by members as an investment that they can exert some control over and hold long term."
-By CNBC's Lawrence Delevingne
- Financials Industry
- Private Equity & Hedge Funds
- private equity