Charlotte Beyer started this private membership organization, now with 345 families in 17 nations, whose members oversee between $30 million and several billion dollars in assets. She talks with contributing editor Michelle Lodge about how the wealthy invest now.
1. What investment trends do you see?
First, the world of investing has gone global. Second, investors seek to partner with the best: It's in contrast to 30 to 40 years ago, when you gave an advisor your fortune and maybe saw him once or twice a year for golf or over dinner. And, third, there's a much-increased focus on risk. Investors aren't just looking for the return, they want to know what will happen to their investments if we have another downturn. People now realize, thanks to the financial crisis, that they can lose a lot of money.
2. Why is there such a vigorous interest in global investing?
And where are they investing? Any economy that is growing faster than the U.S. is being looked at seriously by investors. The reason Asia, and I don't mean China only, is so attractive is that the growth of the economies and the demographics are more in favor of solid equity returns. Other places they are looking at are both Brazil and Russia. And don't forget India, which I include when I talk about Asia. Many IPI members, however, see opportunities through large global companies in the U.S., such as [heavy-equipment maker] Caterpillar and [soft drink giant] Coca-Cola, that are selling overseas to countries with growing economies.
3. How has the uncertainty about the market, and last year's flash crash, in particular, affected the behavior of IPI members?
They pay much greater attention to liquidity and want to know how liquid their investment portfolio is. There's also an increased allocation in cash. And finally, they want their portfolio to be simpler, so they can control it in volatile times. In the words of one IPI member: "At the advice of my wealth manager, I created a complex, opaque, tax-inefficient portfolio, and I was still down over 20% in 2008." The flash crash frightened them. It made them question whether the equity market was a level playing field. Direct investing became more popular, as did venture or angel investing or real estate [investing], because they can touch and feel it [real estate].
4. What's the most pressing matter facing these well-heeled families?
The parents of the family are very worried that the grown children might not know how to manage the wealth well or won't find the passion in their work that they did. They haven't shared with them the extent of their wealth or details of their estate. Some parents worry that if their children knew how rich they are, they might not work.
So they wonder how to handle the transition from the money managers to the next generation. They ask themselves: Is the next generation ready, willing and able to take on the management of significant wealth? For many parents, the answer is no. Lack of knowledge about money exists because it's not easy for people to talk about money, it's often treated as a secret and it's so aligned with power and love.
5. What is the solution?
I support investor education, which is why I helped start a family-wealth course at Wharton. Investor ed, like drivers' ed, should be practiced first in a safe place. The parents could begin teaching their children early by going over the ways to spend money and how they work in their philanthropy. They should [explain] what money is supposed to do in their lives and whether it should have a good impact or how it might have a bad impact.