UHNWs' Returns Are Slacking As They Prioritise Cash Holdings, UBS Warns

Josh O'Neill

10 July 2017

Ultra-high net worth investors constructing portfolios with high cash allocations risk stymying investment returns, , the world's largest wealth manager, has warned.

UBS' analysis of self-managed portfolios shows that despite having access to “considerable investment advantages” compared to the average investor, many UHNWs maintain high allocations to cash, often in the region of 35 per cent of their portfolio.

And this is not healthy, argues the Swiss banking giant.

Over the past decade, cash has returned 1.1 per cent annually,or 11.1 per cent over ten years, and UBS says this is creating “significant drag” on the performance of UHNWs' portfolios.

By comparison, UBS said an even split of private equity and hedge fund investments would have returned 3.8 per cent on an annualised basis, and 45.1 per cent over the decade.

In a new report, titled The Great Opportunity, UBS highlights five advantages that UHNW investors should take into account when building their investment portfolios.

Private capital presents major opportunities for UHNW investors, UBS says, but other investors, such as university endowment funds, make better tap into the area more efficiently through private market investment and take a long-term investment approach.

UBS also recommends UHNW investors utilise their peer networks, as they can provide “invaluable” insight and information beyond the reach of professional investors' research capabilities.

Because UHNWs hold an extremely high amount of investable assets, they should exploit their ability to make illiquid investments and, in turn, harvest the inflated returns, UBS says.

UBS says that bank regulations often carve out new opportunities for UHNW investors. Heightened regulation has increased both investment and trading constraints on banks relative to other investors. This provides an opportunity for UHNW investors to capitalise on these dislocations, according to UBS.

Finally, UHNW investors are less likely to suffer from behavioural biases compared with other types of investors, UBS claims, adding there are systematic ways to convert these biases into profit opportunities.

“Those with great wealth are often the very best in their field, and we believe this should be reflected in an investment strategy which is innovative, proud to be bold, and that takes advantage of the significant opportunities available to them,” Simon Smiles, chief investment officer of UBS Wealth Management's UHNW unit, said. “Whether that is using liquidity to their advantage, capitalising on the dislocations created by increasing regulation or tapping into their unique information network, with the right mindset and the right vision, the opportunities are there."