More Tortoise Than Hare In U.S. Wealthy
Most multimillionaires in the U.S. have a middle-class background and built their wealth gradually through hard work and buy-and-hold investing, according to the 2016 U.S. Trust “Insights on Wealth and Worth” survey.
The wealthy are a diverse group of people who nevertheless have a lot in common, according to the survey of 684 people with at least $3 million in investable assets.
“Perceptions of the wealthy in history and popular culture have been painted with a broad brush that doesn’t reflect the majority of financially successful people in society,” said Keith Banks, president of U.S. Trust.
The wealthy are an “increasingly diverse group of men and women of all ages and backgrounds. Their advantage in life is not rare financial privilege, but rather basic values, discipline and sense of potential shaped by family from an early age, which equipped them to make the most of every opportunity,” he said.
According to the survey, which was equally divided among people with $3 million to $5 million, $5 million to $10 million and more than $10 million, 77% came from middle class or lower backgrounds, including 19% who grew up poor. They earned wealth over time, most of it through income from work and investing.
Eighty-six percent made their biggest investment gains through long-term buy-and-hold strategies, traditional stocks and bonds (89%) and a series of small wins (83%) rather than taking big investment risks.
Almost 60% of high-net-worth individuals keep more than 10% of their investment portfolios in cash positions and 20% have more than one-fourth of their money in cash, partly so they can invest in sudden market ups or downs.
A strong tradition of family values and a desire to give back to the community through philanthropy are two traits that were evident across generations and across levels of wealth, the survey showed.
“The one common thread that cut across all generations was the importance and impact of family values as key contributors to success,” said Chris Heilmann, chief fiduciary executive of U.S. Trust.
—Karen DeMasters
Impact Investors See Food, Agriculture As Top Causes
Feeding the world’s nearly 7.5 billion people while minimizing damage to the environment ranks as the challenge impact investors are most likely to pour money into this year, with roughly one-third planning to increase their allocations to food and agriculture, according to a survey by the Global Impact Investing Network (GIIN).
Other areas where impact investors—who seek to solve social and environmental problems while turning a profit—see increasing opportunities include clean energy and health care. The regions they’ll be giving the biggest boost in capital to are sub-Sahara Africa and East and Southeast Asia.
“These investors consider impact investing to be a powerful tool when it comes to furthering economic development in emerging markets, where basic services like food and agriculture are a critical need,” said Abhilash Mudaliar, GIIN research director. “When you look at some of the other sectors highlighted, such as education, health care, energy, these are all critical basic services that can drive improved socioeconomic outcomes in these regions. And food and agriculture in particular play a critical role in livelihood support, given the high proportion of people in these markets that derive their income from agriculture.”
The network surveyed 157 investors managing $77 billion in impact assets and found that nearly 80% intend to maintain or increase their commitments in 2016. That translates to a 16% jump in capital committed—to a planned $17.7 billion this year from $15.2 billion in 2015—across various sectors, geographies and asset classes.
The bulk of 2015 investments, $7.2 billion, came from asset managers, who said they invested primarily on behalf of family offices and foundations. Direct investments from foundations, banks, development finance institutions, family offices, pension funds and insurance companies made up the rest. In all, these investors committed capital to 7,551 deals in 2015 and plan to commit to 11,722 deals in 2016.
The survey results do not represent the entire global impact investment market, which is difficult to measure, but they do give some indication of its growing strength. Interest in the discipline is increasing largely because of changing attitudes—the realization that governments and philanthropy can’t solve today’s megaproblems alone and that, in fact, there is money to be made in solving them.
Survey respondents expected an average gross return for debt of 5.4% in developed markets and 8.6% in emerging markets. On the equity side, they expected an average gross return of 9.5% in developed markets and 15.1% in emerging markets.
The vast majority, 89%, reported that their investments have performed either in line with or above financial expectations, while nearly all reported impact performance in line with or better than expectations.
—Carol J. Clouse
