Alternative Asset Class Gains With High-Income Folk

Wealthy individuals have become smitten with alternative investing strategies, a new survey shows. Nearly 28% of investors with $5 million or more in assets currently invest in alternative asset classes like private equity. This percentage jumps to 62% for investors with $25 million or more in assets, according to a recent study conducted by the Spectrem Group.

Spectrem Group is a strategic consulting firm specializing in the affluent and retirement markets.

The results should not come as a shock to most general partners of venture capital firms, because at one time private equity investments were viewed as more of a sure thing. However, times have changed. While firms allow individuals to invest as a way of thanking them for various favors, making capital calls has become a problem for some wealthy individuals, according to sources, who declined to give specifics.

About 14% of investors worth $25 million or more invest with private equity firms, while only 8% of investors with $5 million to $10 million invest with private equity firms. The wealthiest group has devoted the largest amount – about $2.2 million of their total assets – to private equity.

“I think we’re going to see many individuals sitting on the sidelines or making smaller commitments. They are finally recognizing that there is volatility,” said Russell Pennoyer, a partner with Benedetto, Gartland & Co. “On the other hand, the returns are still more stable than the returns in the public market, so it can be good for individuals.”

Laurie Cochran, a director with Spectrem Group, said that wealthy individuals have particularly high involvement in the private equity arena because most of them were entrepreneurs. “These are basically curious people. A lot of them are retired business owners, and know about the area. They feel a need to stay connected,” Cochran said.