Where the "smart money" invests!

Family offices (the private wealth and investment arm of ultra-high net worth families) are often regarded as the "smart money".  They typically have the scale to hold a wide range of assets directly, the connections to access investments that retail investors don't see and the skill to construct globally diversified portfolios.  So how will a family office allocate across its portfolio?

A recent Wall Street Journal article showed a family office "model portfolio" - the surprise is around the size of alternative asset holdings.  Private equity, venture capital, direct property, commodities, hedge funds and art total up to 50% of the model portfolio.  The more conventional stocks, bonds and listed property come in at 41% (with cash making up the balance).

The particularly high allocation to private equity and venture capital shows the benefit of being a well capitalised investor with a long term horizon. They can exchange liquidity (the ability to quickly sell an asset) for the higher returns that unlisted assets like private equity often bring.  

An NZ equivalent long term investor is the NZ$44 billion NZ Super Fund which has a lower (but still significant) 17% allocation to similar assets - infrastructure, commodities, property, private equity and "private markets".  Alternative assets are a key focus of well diversified investors with a long term time frame.

Source:  NZ Super Fund Annual Report 2016

Source:  NZ Super Fund Annual Report 2016

John Berry,  Director

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