FINTRX, a data and research provider focusing on high-net-worth individuals (HNWIs) and family offices, recently released a report showing where these investors are placing their money. Titled "Mapping the Location and Assets of the Family Office Ecosystem," this report provides an interesting insight into where wealthy investors are allocating funds.
For real estate investors who are attracting other people's money (OPM), these types of insights are critical to digest. You need to be able to intelligently talk about all of these different asset classes and compare them based on strengths and weaknesses to real estate.
Here's an overview of key trends from the FINTRX report and what real estate investors should know about asset allocation by HNWIs.
Allocations and real estate
Data collected by FINTRX from just over 2,700 family offices across the globe shed interesting insights into the asset allocation of HNWIs. According to the report, here are the proportions of family offices invested in each asset type:
- Private equity (77.6%).
- Hedge funds (70.2%).
- Long only (66.6%).
- Real estate (59.6%).
- Direct investments (41.2%).
- Venture capital (30.6%).
As you can see, real estate is held by a significant portion of family offices, showing the importance of this asset class to HNWIs.
It's worth noting that private equity and hedge fund allocations tend to be riskier investments than real estate, which may be a good talking point for investors who are pitching HNWIs to invest in their projects. This is particularly true as we are likely entering an extended recessionary period.
In reviewing FINTRX's data from North America only, 72.3% of family offices have exposure to real estate, up from 71.2% in Europe, and 60.9% in Asia. This is positive for those raising capital for real estate projects in North America as it shows a higher emphasis on this asset class.
Talking to HNWIs
As you are attracting capital, consider the value of real estate compared to the different asset classes currently being focused on by HNWIs. Since they have more exposure to hedge funds and private equity than real estate, you need to be intimately familiar with those asset classes so you can speak intelligently about how they are different from real estate.
Given that we're heading into a recessionary period, real estate is poised to lead a recovery. Further, if we do get a real estate correction, it will not be at all like the one we saw in 2008. Surprisingly, rents stayed relatively stable during the pandemic, showing the robustness of residential rental real estate amidst economic turmoil.
All of these points are worth acknowledging, dissecting, and discussing when raising capital from HNWIs. Given that most are already exposed to real estate, you don't need to explain the value of this asset class. You'll instead need to focus on why you and why real estate is a good investment in the near term.
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