By Nikki Baldonieri
Chief Investment Officer
I have always been fascinated by how the world’s wealthiest individuals invest and what we can learn from them.
This week, I flipped through some articles I’ve had filed away on the investing choices of the uber wealthy. I found a recent Forbes story about how the richest people in the world have shifted their allocations. I read the piece again today. All I can say is this: Forbes missed one.
It’s not a bad piece, or even inaccurate. It’s just missing a key piece of information about how we can invest like the wealthy.
It’s no secret the world’s elite invest differently than up-and-comers still working to get there. For starters (and I talk about this a lot), they invest much less in stocks and much more in hard assets like real estate and private equity. Forbes suggests that any investor looking to emulate the wealthy can shift more dollars to private equity, via stock in the largest PE firms, purchasing shares in a PE fund itself or working with an advisor who specializes in private investments.
Those three methods carry their own sets of challenges. For example, allocating more dollars to publicly traded private-equity stock doesn’t eliminate the volatility many wish to avoid in the market. As for investing directly in funds or with specialized advisors, those routes come with minimum investments that can price many investors out of the opportunity.
So what’s an accredited investor to do?
Here’s what Forbes missed: These changing allocations towards more exposure to private equity represent the wealthy making direct investments with partners they trust. The only secret sauce is that private equity offers exclusive, high-growth opportunities that are typically correlated with the success and failure of a business (ownership), and less dependent on the greater market performance.
Here’s why I get excited: Ten years ago those options available to the wealthy weren’t available to the rest of us. Even two or three years ago, most accredited investors didn’t have ready access to investments in hard assets through a relationship with a proven sponsor. Now they are accessible.
Crowdfunding and online solicitation changed the game. The investing world is becoming flat. Now, it’s possible for the average accredited investor to put their money into pools that support proven, trustworthy partners in real estate and operating companies. Allocations don’t have to be limited to a big publicly traded REIT or PE firm. Today, seasoned pros are putting technology to work and creating platforms that open trusted investing partnerships to a much wider segment.
Here’s where Forbes and I agree. The wealthiest investors in the world don’t allocate much to “buy, hope and pray mutual funds.” Instead, they pick investments with trusted partners that won’t be subject to stock market ups and down. For the first time in history, that advantage is now available to the rest of us.