Mild Kingdom

'Tiger' Investors Chase Around Like Cubs

The so-called smart money chases the last hot thing.
Photographer: Herbert Pfarrhofer/AFP/Getty Images

The “smart” money isn’t so different from the rest of us.

Tiger 21 -- an acronym for The Investment Group for Enhanced Results in the 21st Century -- released its latest asset allocation report on Tuesday, which compiles the aggregate asset allocation of its members.

According to its website, Tiger 21 has more than  500 members "who collectively manage more than $50 billion in personal assets.” The group helps its members “improve their investment acumen” through access to “the best minds and resources in the world.”

So how shrewd are Tiger’s high net-worth members?

Tiger began tracking its members’ asset allocations in 2007. The largest investment that year was a 28 percent allocation to publicly traded stocks. Then came the financial crisis. The MSCI ACWI IMI Index -- a collection of large-, mid- and small-cap stocks in 47 countries -- tumbled 42 percent in 2008, including dividends.

Despite the heart-stopping declines in global stock markets that year, the Tigers kept their cool. Their allocation to stocks climbed to 31 percent in 2008, which suggests that they bought -- or at least held -- stocks while other investors panicked.

But the calm was short-lived, and the Tigers capitulated a year later. They slashed their stock allocation to 19 percent in 2009 and fled to all the predictable locales. Their allocation to bonds jumped to 23 percent in 2009 from 16 percent a year earlier. Their allocation to hedge funds -- which held up far better than the stock market during the financial crisis -- nearly doubled to 9 percent from 5 percent.  

Those moves didn’t turn out to be exceptionally savvy. The MSCI ACWI IMI Index has returned 12.1 percent annually since 2009 through June, while the Bloomberg Barclays U.S. Aggregate Bond Index returned 4 percent and the HFRI Fund Weighted Composite Index -- which tracks hedge funds -- returned 5.8 percent.

Watching stocks outpace bonds and hedge funds must have been irksome, and the Tigers backpedaled. Their allocation to bonds gradually shrank to 9 percent as of June. Their allocation to hedge funds is now just 4 percent.

The Tigers haven’t gone back to stocks, however. Their current stock allocation of 21 percent is only modestly higher than it was in 2009. Instead, they’re betting on private equity and real estate. The allocation to private equity has nearly doubled to 21 percent as of June from 13 percent in 2009, while real estate has risen to 30 percent from 19 percent.

They're Grrreat

Members of Tiger 21 are increasingly chasing private equity and real estate

Source: Tiger 21 Research

Note: Allocations for 2017 as of June.

It’s not surprising that the Tigers have been seduced by private equity. In recent years, it has managed to combine the best attributes of stocks and hedge funds: high returns with muted drawdowns. The Cambridge Associates US Private Equity Index returned 13.7 percent annually from 2009 to 2016 -- the most recent year for which numbers are available -- while the MSCI ACWI IMI Index returned 11.4 percent. And private equity held its ground as well as hedge funds during the financial crisis. The Private Equity Index was down 22.5 percent in 2008, while the HFRI Fund Weighted Composite Index was down 19 percent.

Alternatively

Hedge funds and private equity held up far better than stocks in 2008

Sources: MSCI, Cambridge Associates, Bloomberg

Private real estate has also delivered high returns with muted downside. The NCREIF Property Index, which tracks a pool of commercial real estate properties, returned 11.5 percent annually from 2010 through March. And it, too, held its ground during the financial crisis. The index was down a total of 22.2 percent in 2008 and 2009. (The index is based on appraisals rather than transactions, so its returns tend to lag actual returns from real estate by several quarters.)

In Vogue

Private equity and real estate have blown by hedge funds in recent years

Sources: Cambridge Associates, Bloomberg

Note: Indexed to 100.

Michael Sonnenfeldt, founder of Tiger 21, explained its members’ interest in private equity and real estate by saying that the Tigers “are most comfortable with assets they can have direct ownership of,” and that “they can own a building or a part of a small company.”

Maybe so. But it appears that the members of Tiger 21 are also most comfortable with investments that have performed the best most recently. Chasing returns rarely trumps disciplined investing. Something tells me that their latest foray into private equity and real estate will work out about as well as their previous pivot into bonds and hedge funds.     

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Nir Kaissar in Washington at nkaissar1@bloomberg.net

    To contact the editor responsible for this story:
    Daniel Niemi at dniemi1@bloomberg.net

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