Personal Finance

Here's where the wealthiest investors are finding opportunities

Key Points
  • In the third quarter, members of TIGER 21, an investment club for high-net worth individuals, bumped up their allocation in real estate.
  • These investors also are maintaining cash cushions to avoid having to liquidate the best assets at a bad time.
  • Members are now dipping a toe into venture capital and angel investing.
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Amid the political noise in Washington, D.C., wealthy investors are going with an asset class they know best: real estate.

Members of TIGER 21, an investment club for high-net worth people, ticked up their holdings in real estate to 29% from 28% during the third quarter. This is the group's highest allocation in that asset class this year.

TIGER 21, an organization of about 750 people with at least $10 million to invest, stands for The Investment Group for Enhanced Results in the 21st Century.

Low interest rates have made real estate more attractive, according to Michael Sonnenfeldt, founder of TIGER 21.

"Members took some of the low-hanging fruit in the frothiest markets off the table, but they hung onto their core holdings," he said. "You get the benefit of recurring rent income and you can project into the future."

Investors have been paying attention to the uncertainty on Capitol Hill, and they have bulked up their cash cushions to protect themselves.

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These investors have maintained a steady 12% allocation in cash and cash equivalents for all of 2019.

"The lesson from 2008 is that you have to have a lot of cash so that if the markets go upside down, you don't liquidate the best positions at the wrong time," said Sonnenfeldt. "You want to weather the storm."

Keeping cash on hand also allows these investors to snap up new opportunities when they become available.

Venture capital

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Investments in private equity ticked downward slightly, accounting for 23% of members' allocations. That's down from 24% in the second quarter.

Venture capital is a part of some of those private equity investments — an area that's capturing members' interest , due to their experience with entrepreneurship.

"Five or 10 years ago, you would look at members' private equity holdings and they would be large positions in single companies or funds," said Sonnenfeldt.

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"Now, many members are sticking their toe in the water and throwing smaller chips into venture capital opportunities and angel groups," he said.

Rather than pouring $1 million into any one private equity entity, these investors might make 20 bets of $50,000 each on startups and other emerging opportunities, Sonnenfeldt said.

Technology is the sector TIGER 21 members believe will be the fastest growing in 2020, followed by health care and real estate.

"We're at a moment where much of technology was focused on replacing brawn with robots, and now we're replacing brain with artificial intelligence," Sonnenfeldt said. "You're creating labor-saving devices, especially in areas where there are labor shortages."

Sticking to stocks

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Holdings in public equity, as well as hedge funds, have kept steady.

Group members have 21% of their asset allocation in stocks — the same as in the second quarter of the year. Hedge funds continue to account for 4% of their allocation, keeping in tune with the prior quarter.

They also kept a toe in fixed income, leaving their 9% allocation to this asset class unchanged from the second quarter.

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