Report Summary
Fear is preventing the wealthy from investing, even where they see opportunity. While prospects for most asset classes and the global economy remain highly uncertain, recent market rallies and wider discussion of the “green shoots” of recovery have raised the question of whether a turn in the cycle may be imminent. Almost 90 per cent of the high-net worth investors questioned for this report say that the current environment offers buying opportunities but, crucially, 68 per cent believe that the risk of further price falls is too high to consider them. In addition, only a minority of 28 per cent say that they will increase levels of risk in their portfolio over the next 12 months. This widespread sense of caution and risk aversion highlights the extent to which wealthy investors have been chastened by the events of recent months and suggests that it may be some time before confidence returns to the market.
High-net worth investors are sticking with the status quo. Asked how they expected to change their asset allocation over the next 12 months, the majority of investors say that they will make no adjustments at all to the proportions that they hold across major asset classes. For example, 58 per cent say that they will make no change to their allocation to domestic stocks, while 65 per cent say that they will neither increase nor decrease their exposure to hedge funds.
Behavioural finance experts questioned for this report suggested that a pervasive “fear of regret” is impeding more decisive action among many wealthy investors and encouraging them to stick with the status quo until they feel they have a better understanding of the situation.
High-net worth investors are seeking the comfort of simplicity and familiarity. More than 50 per cent of investors agree that, in the current environment, they will only invest in what they know. Where respondents are seeking greater exposure to specific assets, it tends to be to the most “straightforward”, with real estate, cash, government bonds and domestic equities the most likely beneficiaries of increased allocation. The perception that complexity – in the shape of financial assets such as collateralised debt obligations – played a central role in the current crisis is only exacerbating this trend.
Action on the financial crisis has yet to restore trust among investors. Many of the survey respondents are unimpressed with the way the financial crisis has been handled by central banks and governments. Investors from India, Spain and Hong Kong are most likely to offer a negative assessment of policy-makers’ handling of the crisis. Even a politician as feted as President Obama does not escape criticism: only one-third of wealthy investors in the US believe that his administration’s performance during the crisis has been successful. The survey respondents are also strongly critical of the media, with less than one quarter of respondents believing it to have been successful in its handling of the financial crisis.
Transparency and quality of information are becoming watchwords for wealthy investors. Due diligence is rising up the priority list for many high-net worth individuals, with almost half of respondents saying that they intend to increase the amount of time that they spend selecting specific investments. Equally, when choosing a financial provider, the quality and transparency of investor information is becoming much more important as a criterion for selection, along with the financial stability of the institution.
