HOW DO BILLIONAIRES INVEST?

This week I got a hold of the newly published Billionaire Census from Wealth-X and UBS. It revealed that the 2,325 world’s richest people are holding an average of $600 million in cash – each. That equates to about 19% of their total net worth. It’s roughly a 10% jump from the year before. Somewhat surprisingly perhaps, it’s also 5 times more than their real estate holdings. Staggering statistics, but what could we derive from this information?

I’m hawking the global financial trends and have conversations with many of the brightest professionals and investors in the world. Many interpret the stockpile of cash on the sidelines as a potential influx to drive stock prices even higher. Without a doubt there is a lot of money that needs to make some decent yield. With stock prices at an all-time high, interest rates (and bond returns) near an all-time low; every asset class seems squeezed for the last drop of low-risk return.

And yet, the billionaires (and their top notch advisors) are still on the sidelines for almost 20% of their holdings, and growing. They are well aware that inflation is slowly diminishing their capital power. But they haven’t found a better alternative yet – but surely are on the lookout every day.

I personally am of the opinion that the cash reserves will actually drive the appetite for more risky investments. However, likely not so much in the traditional assets such as stocks, bonds and mutual funds. Risk versus rewards ratios have already been pushed to outer boundaries. The class of private investments (also referred to as Direct Investments) still has many new and undiscovered gems. This asset class is growing and will surely continue to grow. Plus, in today’s global economy, cash is easily moved past borders. It can quite easily be invested in another country than our own. The world has become a smaller place.

There is currently a growing trend whereby wealthy individuals, Family Offices and fund managers are sharing investments in private deals. These syndicates or co-investments used to be reserved for the haut-finance world. With so much cash actively seeking alternative opportunities to make a return, the money is collaborating to identify these deals and take advantage of them.

These opportunities are widely available, from local start-ups to larger private equity deals. It provides a tremendous chance to be part of the next big thing, before it becomes as big as Google or Amazon. The trick is to cherry pick the very best opportunities, negotiate a Shark-like deal and use your connections to help the investment succeed. That’s why the Billionaires have 46.7% of their assets in private investment holdings. And a war chest of $600 million each to deploy. Wouldn’t it be great if we could all have that problem? We would syndicate together and seek the best opportunities in the world to put our money to work.

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