When Fox Business and CNBC talk about where the “smart money” is putting their money in 2020, they’re not talking about the REAL “smart money.” They’re talking about the Wall Street “smart money” – the so-called Wall Street experts, talking heads and fund managers trying to stay ahead of the Wall Street game.
When I talk about the REAL smart money, I’m talking about the institutional and ultra-wealthy investors that always seem to stay one step ahead of everyone else.
To see what the investment trends of the real smart money are, look no further than how the members of exclusive investment club Tiger 21 are allocating their assets.
For background, Tiger 21 includes the wealthiest of the ultra-wealthy and counts more than 700 members among its ranks worldwide. Each pays $30,000 per year and must have $10 million in liquid assets for access to this exclusive peer group. Collectively, they manage assets worth more than $70 billion.
Here’s a chart showing where the members of Tiger 21 currently have their assets allocated as of the end of the third quarter of this year:
What does this chart tell me about affluent investing habits?
The affluent like real estate and they like private equity as well as other alternative private investments. What this chart doesn’t tell me is where the money is going in 2020.
We’ll have to refer to the following chart to get an idea of where the smart money is going in 2020:
Looking at the investment data from the past year from the 3rd quarter of 2018 to the 3rd quarter of 2019, we can draw the following conclusions:
The members reduced their stock allocations from 23% to 21% and reduced their hedge fund position from 5% to 4% while increasing their real estate holdings from 28% to 29% and their cash position from 10% to 12%.
Does this chart provide any insight into what the ultra-wealthy are anticipating for 2020?
At first glance, it seems to me that they’re increasing their holdings intangible assets like real estate and cash while reducing their exposure to ultra-volatile assets like stocks and hedge funds.
Why are they doing this?
It’s because the ultra-wealthy and institutions are anticipating a recession in 2020. There are just too many signs piling up to ignore – not to mention the fact that we are in the midst of the longest expansion in our country’s history.
For perspective, our current expansion is currently six months longer than the previous record.
There’s proof the affluent are anticipating a recession in 2020. According to a Campden Wealth Research survey of 360 ultra-wealthy UBS clients, 55% of family offices expect a recession in 2020.
We know the wealthy are anticipating a recession. So how are they preparing?
The increase in real estate is telling. Commercial real estate has always been a reliable and consistent source of recession-resistant income. It makes sense that the ultra-wealthy are increasing their already high allocations to real estate because of the passive income.
Still, the ultra-wealthy don’t limit their passive income holdings to just real estate. They’ll consider any private equity opportunity offering periodic income, appreciation, and security in a productive asset, including productive businesses, agriculture, commodities, and energy.
For example, there’s intense interest by the ultra-wealthy in cannabis right now. Explaining the aspect of cannabis that most appeals to the affluent, Michael Sonnenfeldt, the founder of Tiger 21, explained, “it’s owning the land that cannabis is grown on.”
As to the final question as to why the wealthy are hoarding cash, it ties right in with where they’re diverting their assets. The wealthy are hoarding cash for bargain hunting – to pick up private positions in real estate and other productive assets.
With 10-15 year investing timeframes and liquid cash assets, the ultra-wealthy can afford to pick and choose in a downturn.
If the investing habits of the wealthy in 2019 are anything to go by – and they’ve been reliable indicators in the past- the investment trends in 2020 of the mainstream investor should look something like this:
- Sell off of stocks.
- Sell off bonds.
- Reallocate to alternatives in private markets.
- Reallocate to stable, income investments with long-term appreciation backed by hard assets.