The firm found about 35% of the average self-managed portfolio run by the wealthiest in society is sitting in cash, which in a low-interest rate world is holding them back from maxing out returns.
The ultra-high net worth investment team at UBS said these investors could be doing much more to take advantage of their unique financial position.
In a report titled ‘The Great Opportunity’, the UBS team said rich private investors should be making the most of being unconstrained by benchmarks, being able to invest freely in private capital and taking advantage of illiquidity.
Chief investment officer for UHNW Simon Smiles said: “Not all of our clients take advantage of the advantages they have to the degree that we suggest they could and that’s really the genesis behind this report.”
These high-net worth investors, usually successful business owners in their own right, are also much more able to grasp the benefit of long-term investing and their business-like approach helps structure a portfolio.
Smile added: “There tend to be very large cash balances currently within portfolios so you take their ability to think strategically, deal with illiquidity and the existing large cash balance that lends itself very well to longer term investment themes, and it is a game institutional investors can’t play because they are being marketed to market on a daily basis.
“This lends itself to investing in direct investment in private markets and also lends itself to impact investing.”
Wealthy investors should make the most of large market dislocations caused by institutional investor flows, Smile said. They are also in a prime position to benefit from premiums attached to investing in illiquid assets which account for just 2% of the average self-managed portfolio, he added.
In looking for the semi-liquid and ‘off the beaten track’ asset classes, UHNW investors have “the potential to be the best investors in the market”, added James Purcell, head of hedge funds and UHNW investments at UBS.
“Ultra high net worth investors really are sitting between two sweet spots,” he said.
“In its most simplistic form it allows them to find asset classes that others are unable to access to harness those additional risk premiums, for example mezzanine debt, asset-backed securities, corporate hybrids, bank capital, all of which can help generate yield in this environment.”
