Skip directly to content


Click here for full story

Median Family Net Returns: Just 1.5%

In January, the Institute for Private Investors (IPI), a provider of networking and educational resources for ultra high-net-worth investors, released part one of its Family Performance Tracking survey, in which IPI member families allowed a peak into their intended strategies and expectations for their portfolios. IPI recently released its follow up survey with actual allocations and returns. Respondents this year totaled 57 private investors, with 53% of them fretting over assets in the $50 million to $200 million range. Almost a third of respondents had over $200 million.

Nice data if you can get it. The results show that while IPI members are scattered when it comes to goals, strategies, and results – which is not surprising, of course, considering all the economic Push Me-Pull Me. But some allocation trends still shone through.

IPI members split fairly evenly into strategy camps on either ends of the spectrum: timing the market versus staying the course. Twenty-two percent classified themselves most conservatively as making “very few, if any, changes,” while 18%, the hyper traders, made dramatic shifts in or out of various asset classes.

Families who sought principal protection (that is, they aimed to preserve capital while factoring in inflation and the growth of the family) did a bit better in 2011 than families who went full bore after growth. Almost two thirds of the low-risk set reported positive returns, while less than half of the growth-hungry families saw positive returns. It’s very discouraging that risk-taking does not appear to be rewarded at this point in history.

Here’s another bummer: Returns overall were the lowest in 15 years, aside from 2002 and 2008. But bear in mind the range of returns was significant, varying from -10% to +25.10%. A majority of members reported annual net-of-fee returns between -2.16% and +2.28% in 2011, an anemic return that should start to cut into lifestyle choices. In the past five years, average returns were 2.4%, with the median return at 1.5%, again, all net of fees.

In January, investors anticipated allocation increases in tangible assets. Results show 45% of respondents increased their commitments to commodities, the most popular shift. Also favored were real estate (31%), long-only global equity (23%) and private equity (22%). They decreased their allocation in hedge funds and funds of funds, which now average 15% of portfolio allocation. (IPI points out such weighting changes may represent market valuation increases rather than actual allocation shifts.)

Looking ahead, 70% of the families say unknowns like geopolitical crises and domestic policy shifts continue to be a chief concern – as it is for the rest of us. Also high on the worry list were balancing long term goals with short term results (65%), and finding opportunities for yield (48%). One fact buried in the report is sure to cheer the money changers: 62% of respondents, an all time high, reported employing a financial advisor for more than half of their wealth.

As the survey only reveals data from 57 IPI member families, and disclaims off the bat that this data is no benchmark, we wondered how to precisely interpret and use this data. So we asked the IPI folk.

IPI Executive Director, Mindy Rosenthal, says her group’s members tend to be market leaders. “In the early 90s, IPI reported ultra-high net worth investors were moving into hedge funds. Now they’re mainstream. So it gives a peak into what’s coming down the pipeline,” she says.

Rosenthal notes that in the January survey, families were focusing more on hard assets, and less on stocks, bonds, and funds. One particularly interesting trend that showed up: purchasing private companies. Rosenthal says these wealthy families are continuing to act like their own private equity houses, looking to buy $2-10 million family-owned businesses that don’t have a succession plan or enough access to capital to take the business to the next level.

Smart move. In this space wealthy families have a big marketing advantage, because small-business owners easily warm to the idea of selling to another family, where community involvement and personal-touch management are better understood and more likely to be maintained. The election TV ads daily hammering away at Bain Capital and the cold-eyed private equity industry in general should make friendly acquisitions – family to family – all that more attractive for buyers.