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The wealthiest investors are ramping up on this asset

Key Points
  • For the first time since 2016, members of TIGER 21, an investment club for high-net-worth individuals, increased their allocation to cash during the first quarter.
  • This move is defensive, signaling worries about the trade wars and political dysfunction, according to Michael Sonnenfeldt, founder of TIGER 21.
  • Investors also trimmed exposure to hedge funds and real estate.
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This is how the ultra-wealthy are navigating volatility, says Tiger 21 founder

Amid concerns about trade wars and political dysfunction, the wealthiest investors are padding their cash cushions.

Members of TIGER 21, a group of about 700 individuals with at least $10 million to invest, increased their allocation toward cash and cash equivalents to 12% from 10% during the first quarter, according to the group's quarterly report.

"Basically, members are concerned on the one hand," said Michael Sonnenfeldt, founder and president of TIGER 21, which stands for The Investment Group for Enhanced Results in the 21st Century.

"They see the China trade wars heating up, the growing deficit and instability, but the economy is strong, as well," he said.

Notwithstanding their higher cash allocation, members remain invested elsewhere. Public equity, private equity and real estate account for 73% of their overall portfolios.

Adding a cushion
Bloomberg | Getty Images

By raising cash, investors are protecting themselves against having to liquidate on short notice, said Sonnenfeldt.

In doing so, they have also positioned themselves to invest in opportunities as they arise, he said.

Group members shied away from adding to their fixed income holdings. That asset class accounts for 9% of their holdings, similar to the fourth quarter of 2018.

"The yield curve suggests rates won't be rising for a while," said Sonnenfeldt.

"Many people can't figure out how we can have such a huge deficit and then interest rates for the long-term are so low, " he said.

Wealthy investors still remain cognizant of interest rate risk, and they continue to eschew long-term debt. "They're talking about short-term debt as a good cash alternative," Sonnenfeldt said.

Tapping the brakes
Pedestrians walk past commercial real estate in Manhattan.
Michael Nagle | Bloomberg | Getty Images

Members aren't exactly fleeing risk altogether, but they have pruned some of their exposure to certain asset classes.

For instance, they reduced their real estate exposure to 26%, down from 27% in the fourth quarter.

TIGER 21 members also pulled back a bit on their hedge fund holdings, cutting their exposure to 5%. In the fourth quarter of 2018, this asset class accounted for 6% of their portfolio.

"I think members are in one sense fully invested, and on the other hand, they're raising cash so that they don't need to liquidate," said Sonnenfeldt. "They're a little on the gas and a little on the brakes at the same time."

Private equity holdings remained steady from one quarter to the next, accounting for 25% of their allocation.

"Our members are entrepreneurs," Sonnenfeldt said. "They've made their money in private equity and owning businesses and real estate — all of those succeed best when you have liquidity."

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