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asset management

Want to be or remain wealthy? Study what Tiger 21 investors are doing with their portfolios.

By emulating the investment moves of those who have shown they know how to create wealth and protect it, you stand a significantly better chance of joining or maintaining their ranks one day.

One tool that can help you in this effort is the exclusive quarterly member survey from Tiger 21, a North American peer-to-peer network for investors with a minimum net worth of $10-million.

Every quarter, the network asks members to complete a detailed, confidential and anonymous questionnaire about how their portfolios are divvied up. Tracking how those allocations change over time can give you a sneak peek into what the "smart money" is doing (and thinking) right now.

Founded back in 1999, Tiger 21 now numbers over 400 members, with groups in most major Canadian and U.S. cities. All of its members are highly successful investors; taken together, they're ideal mentors for anyone who wants to be a better investor themselves.

Looking back at the first quarter, we've seen a significant downturn, followed by an impressive recovery. That volatility has resulted in trending changes in the asset allocation of the typical Tiger 21 member.

These data affirm a few important themes that have been "evolving" over the past several quarters:

Continued focus on asset protection

The big takeaway from the first-quarter: Despite the strong recovery in equity markets, high-net-worth (HNW) individuals remain on a defensive-to-neutral footing. You can see this defensive stance across a number of data points. Fixed-income ticked up from 10 per cent to 11 per cent, despite the continued low-interest-rate environment. Allocation to hedge funds grew by 1 per cent (an absolute increase of 12.5 per cent). Public equities declined from 23 per cent to 22 per cent (a drop of 4.4 per cent), consistent with the "wait and see" attitude that many HNW individuals currently have about the broader equity market.

Cash levels remain at 10 per cent. I've spoken to many HNW individuals who continue to keep their powder dry in anticipation of better buying opportunities ahead. This is much the same strategy they followed before 2008: build up cash; get ready to use it to buy the unloved; reap the profits.

Confidence in private equity

Another notable shift was the continued confidence in private equity, with allocations up 1 per cent (absolute increase: 4.6 per cent). Over the past nine months, Tiger 21 members have increased their private equity allocation from 18 per cent to 23 per cent currently (an increase of about 28 per cent). That's the highest it's been since surveys began in 2007.

Why? HNW investors continue to view private equity as an excellent place to build wealth over the long term – it's one of the few assets they remain enthusiastic about. They're also attracted to the low performance correlation to the public equity market; this offers the portfolio some protection from the "wild mood swings" of public equities.

Trimming back real estate

Another interesting change is the continued shift out of real estate. The average Tiger 21 member now has about 25 per cent of the portfolio allocated in real estate, a drop of two percentage points over the quarter (the largest reduction of all assets), or an absolute reduction by 9.26 per cent. While allocation remains above the historical low of 19 per cent in 2009, it has been in decline since the second quarter of 2015.

The move seems driven largely by valuations. Most HNW individuals identify real estate as fully valued; now is the time to take profits and rebalance capital. Given that a "topping out" in real estate (particularly in real estate investment trusts) often anticipates a decline in the broader equity market, the move is another example of the smart money being ahead of the curve.

Overall, Tiger 21 portfolios remain well-diversified, with many members focusing on wealth protection. While they're not yet sounding the alarm bells, most Tiger 21 members continue to believe that concentration of wealth creates wealth, but diversification allows the holder to keep it. Good advice at any time, but even more so now.

Thane Stenner is founder of StennerZohny Investment Partners+ within Richardson GMP Ltd., as well as director, Wealth Management. Thane is also chairman emeritus of TIGER 21 Canada. He is the bestselling author of True Wealth: an expert guide for high-net-worth individuals (and their advisors). ( The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates.