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Super-Rich Sit On Too Much Cash, UBS Report Says

Posted by hkarner - 10. Juli 2017

Date: 08-07-2017
Source: The Wall Street Journal

Ultra-high net worth investors hold too much cash, according to UBS, and it could be hurting their returns

UBS, the world’s largest wealth manager, said in a report that investors with at least $30 million in investible assets tend to maintain high cash allocations, often in the region of 35% of their total portfolio.

These high cash levels may be creating a drag on the performance of their assets, the report said. Over the past decade, cash has returned 1.1% on an annualized basis. In comparison an even split of private equity and hedge funds would have returned 3.8%.

The aftermath of the financial crisis and recent market volatility have pushed investors toward lower-risk investments.But the report suggested, among other things, that a greater proportion of illiquid investments could give investors higher returns.

While illiquidity can provide greater returns in the long run, palpable positive effects are possible only when high amounts of capital are available, the report suggested, warning that the “bar for admissions is high.”

The majority of illiquid investments cannot be traded in a market. It can take years for returns to be realized, the report said, adding that exposure to these sorts of assets must be maintained “over the long term.”

“Since there is no continuous market, or pricing, for unlisted assets and any reporting is infrequent, they are not suited to investors who need constant performance updates,” the UBS said.

The risk of not being able to easily exit positions to raise cash “can be difficult,” the report conceded.

Other suggestions made by UBS include investing in higher education endowments, harvesting the value of peer networks, and capitalizing on differences in regional banking regulations.

Wealth X, a marketing consultant, said there are about 226,000 individuals world-wide with investible assets worth more than $30 million, and estimated there will be about 300,000 such investors in 2021.



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