Wealth trends

Article written by Joanna Mather. Published in The Australian Financial Review July 28, 2023.

Wealthy investors have retreated to safe haven assets cash and term deposits to ride out the uncertainty associated with the war in Ukraine and rising inflation, a survey of 1000 of Australia’s richest families shows.

The top asset class among the ultra-rich was cash and term deposits in the first half of 2023, followed by shares, real estate and exchange-traded funds, according to research that shows how wealthy investors carve up their portfolios.

Ultra-high net worth Australians (those with $10 million plus outside the family home) had an average allocation to cash and term deposits of 50 per cent.

Among other high-net-worth individuals (those with $1 million plus), the average was 30 per cent.

“This higher allocation to cash is likely to reflect individuals’ heightened desire for liquidity in volatile market conditions,” a report by research consultants CoreData for wealth manager LGT Crestone says.

Asked to nominate the best-performing assets over the past 12 months, ultra-high net worth individuals said exchange traded funds, while high net worth individuals said real estate followed by bonds and real estate investment trusts.

The survey was conducted around the time of the collapse of tech lender Silicon Valley Bank in April, which further spooked investors already grappling with macroeconomic and geopolitical uncertainty.

“Since this survey, we are seeing our clients move money out of equities and cash and into bonds, due to fixed income opportunities providing comparable yields to equities at a much lower risk,” LGT Crestone chief executive Michael Chisholm said.

Survey respondents were asked to nominate the proportion of their portfolio invested in each asset class.

The average given over to real estate by ultra-high net worth individuals of 42 per cent is lower than 48 per cent for high net worth individuals.

The survey also suggests the ultra-rich are more heavily invested in ETFs, while high net worth individuals have more in REITs.

Mr Chisholm said the most notable long-term shift in how the wealthy invest had been a diversification away from shares and real estate to private markets and alternative assets.

“The number of companies listed in the US has steadily fallen in recent years and this is the first year in 20 years that the ASX has shrunk,” he said.

“More and more big companies are staying private and therefore if you want to participate in that growth you want to be invested through private markets.”

Average proportion of portfolio (%)

*Artwork, antiques and collectables. High net worth defined as having $1m to $10m outside the family home. Ultra high net worth having more than $10m (75% of respondents had portfolio of >$30m) Source: LGT Crestone, CoreData

It is difficult to get access to private markets as a retail investor, which is why Mr Chisholm believes more people will seek help from advice firms.

Inflation was weighing most heavily on the minds of survey respondents.

The majority expected inflation to either rise “moderately” or “substantially” over the next 12 months, which was consistent with sentiment in the same survey in 2021.

However, there was an increase in the proportion of respondents who said they expected inflation to fall, up from 4 per cent in 2021 to 16 per cent in 2023.

Respondents were pessimistic about the outlook for the global and Australian economies. The majority expected both the global economy (49 per cent) and the domestic economy (42 per cent) to be worse in the next 12 months.

The report also finds that when it comes to planning for intergenerational wealth transfers, people are stalling. Nearly two-thirds of respondents did not have a wealth transfer plan in place.