Where the ultra-wealthy are allocating their assets: Survey

TIGER 21 Chairman Michael Sonnenfeldt joins Yahoo Finance Live to discuss the company’s asset allocation report, trading tips, what the wealthy are watching, liquidity, and recessionary concerns.

Video transcript

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BRIAN SOZZI: Tiger 21, an investor group set up to swap trade tips among wealthy individuals, is out with a poll about where they've allocated their assets and what economic trends they're watching from buying opportunities to a potential recession. Joining us with more is Tiger 21's chairman, Michael Sonnenfeldt. Michael, always great to get some time with you. So what are some of the big power moves these folks are making?

MICHAEL SONNENFELDT: The most amazing move going on is that public equity has become our largest allocation, still only 27%. But that's the first time it's our number one allocation. Real estate had been king for over a decade. When you take real estate, private equity, and public equity, it still is in the high 70%. So our members are still long-term bullish on or risk-on on assets that produce income, but they're also concerned about a recession in the short-term. High cash, 11%, 12%, so they can power through anything that goes on.

JULIE HYMAN: Michael, let's dig in to that public equity allocation, though, for a second, if it's the highest ever. I mean, that's pretty remarkable, considering the bull market we were watching pre-pandemic, right? What do you think has changed your members' perceptions here that has led them to allocate more to equities?

MICHAEL SONNENFELDT: So right after the great financial crisis, you had a situation where public equity, for the first time, both had liquidity and superior returns to private equity. For most of my 45-year career, private equity had an illiquidity premium. But in that moment, stocks had fallen enough that you had better deals and better liquidity.

And I think with what's happened in some of the tech stocks and the market for the first half of this year, our members want liquidity because they're concerned about a recession. So committing to private equity at the margin is just a little less positive. And they see some great deals. In the FAANGs, as an example, they've really come back from the beginning of the year. And these are long-term franchises.

So I suspect it's a long-term bet. And maybe, oddly enough, because of recession, they feel more comfortable in the public market than making longer term private commitments. But it's just at the margin. These numbers bounce around basically similar numbers quarter over quarter.

BRIAN SOZZI: Michael, how concerned are you-- this group about the Federal Reserve getting it right when it comes to interest rates?

MICHAEL SONNENFELDT: It's a very narrow bridge the Fed has to go on, the whole issue about interest rates and, particularly, inflation. Our members have run businesses, and they meet in these groups all over the world every month to see what each other is seeing on the front line of the businesses that they still own.

Inflation is real, but it does appear to have peaked. There's a bet going on. Initially, the Fed said it was transitory. Maybe now it's showing that it's peaked, and it's coming back. But we still have high inflation, and members are quite concerned about it. One of the best ways to see it is low fixed income. It's roughly the lowest it's been in about a decade, at about 6% or 7%.

JULIE HYMAN: Yeah, and that's despite a lot of folks we talked to predicting it's going to come back, but hasn't happened quite yet. Let's talk crypto for a second here and allocation to crypto because you also surveyed your members on how they're feeling about crypto at these levels. So what did you find out?

MICHAEL SONNENFELDT: Well, first of all, about 6% think it's the antidote to inflation and instability. So that's a pretty high number. Gold historically has been a 1% to 3% allocation. And crypto is probably in the same number, meaning 6% are looking at it, but they're just taking small amounts.

The real thing that an investor-- entrepreneurs who make long-term commitment, like our members, what they look at is, is Bitcoin dead, or is it just taking a respite? With the other cryptos as well. For people who are real fans of it, they see this as a buying opportunity. And one of the things that you'll learn in our groups when you meet together because most of our members were entrepreneurs, they weren't traders.

If you buy a stock at 100, and it goes down to 50, should you get out, or should you buy more? If you don't know that answer, you shouldn't be in the stock. And for Bitcoin fans and other crypto fans, they know this has been a very tough year, but they see this as a real opportunity because they think the long-term is still bright.

BRIAN SOZZI: Well, let's talk about that long-term, Michael, to crypto. I mean, do they see it as a viable competitor to the dollar?

MICHAEL SONNENFELDT: You know, it depends where you live. If you're in Argentina or maybe Iran or Venezuela, you're going to like crypto a lot more. A lot of the crypto has really potentially staggering properties. Smart contracts would be one example. It's the whole blockchain universe. And what our members are really trying to learn from one another in the groups when they meet is, what is this blockchain?

And a lot of them believe that blockchain has the potential that the internet had a decade ago to transform economy, commerce, communications, records, disintermediate banks, and lawyers. It's really quite extraordinary, the potential. Whether we'll fully realize it, you'd have to say we're still in early days of something that could digitally transform the world.

JULIE HYMAN: Michael, good to catch up with you. Michael Sonnenfeldt is a chairman of Tiger 21. Thanks.