High-net-worth clients are more willing to play the long game and invest in higher-risk assets such as private markets, according to Eleanor Ingilby, head of high net worth at atomos.
Families with millions of pounds in the bank enjoy more tax breaks as they find it easier to use up their full ISA and pension allowances. While this can be done by the non-ultra-rich as well, the super-rich can also set up family investment companies or trusts to lower their taxable income.
But gaining or maintaining wealth is not all about tax relief and there is an important mindset shift that separates the extremely wealthy from the rest of us: patience.
Right now, that is manifesting in an appetite for private markets, which is attractive to high-net-worth clients due to its diversification benefits. They are hearing about it from the “teams around them, whether that be through the family accountant or the solicitor who's worked with them for a long time”, said Ingilby.
Yet it comes at a time when private markets are seemingly out of fashion. The average trust in the IT Private Equity sector, for example, is on a 17.5% discount to its net asset value.
Ingilby noted there are concerns, such as the liquidity issue. Private equity can be difficult to sell and can, in some cases, lead to some investors being unable to get their money out while redemptions are made.
“Private markets obviously have a liquidity challenge around them. I got an email from a client this morning around some investments they had in one, which has stopped allowing drawdowns from the fund," she said, although she noted they do “offer a diversification benefit” to public markets.
This is not the case with investment trusts, although the large discounts and potential lack of a buyer can be prohibitive to selling.
But this liquidity challenge can be overcome by taking a long-term mindset and having certainty in whether the money is going to be needed or not in the near term.
“They can afford to invest in investments that are not as liquid as, say, your client who has got £500,000 to £1m investable assets,” she said.
While this is still a large amount of money, people with this level of wealth (which she described as anything that is not needed for day-to-day life such as pensions, ISAs and long-term savings) tend to look for consistent liquidity just in case they may need to draw upon it.
“They want a portfolio that could be fully liquid within, say, 10 working days, whilst your higher-net-worth clients are a lot more comfortable having a mandate run alongside it that isn't as liquid, but is a smaller part of the overall portfolio. So that's the biggest difference we see,” she said.
Ingilby said higher-net-worth clients are “very informed” and have “sophisticated discussions” around market dips and the opportunities within them, such as the one going on in private markets.
“So often what we'll see is: if there's a dip in the market, [the client] will call to add more capital in at that stage. They're not asking for my opinion on it, they're saying, ‘look, the markets are down 10%, I've had this in the pocket, I'm going to add this into the markets’,” she noted.
Not everyone has access to additional cash. The same goes for the super-rich. But for those without additional capital to deploy, she said they will ask her to lift the risk level of their current investments.
“That's something I don't often see from clients who have, say, £1m or £1.5m – that's not often their behaviour,” she said.
She does not condone trying to time the market, noting that it is “time in the markets” that makes the best returns. However, richer people tend to be more adept at staying the course during dips and able to up their risk or buy more when dislocations occur.
“They're not looking for an absolute return, they're not saying to me, ‘if this doesn't go well, we're in trouble’. They're saying, ‘why not try this, and we'll look at it in five years and see what happened’. It's not a case of ‘I want a good return in six months’,” she concluded.