Wealthy investors look for opportunities amid stock market selloff | Real Time Headlines

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Wealthy investors and family offices have shunned stocks that have caused market volatility this week, but many see price drops as an opportunity for tax savings and estate planning, wealth advisers say.

Private banks and wealth managers say their clients have been reducing their holdings of stocks for more than a year as part of a broader shift from public to private markets amid recent concerns about overheating in the technology sector.

According to a UBS Family Office survey, 35% of family office portfolios are in private equity (the largest of all asset classes), compared with just 28% in equities. A survey by Deloitte found that from 2021 to 2023, family offices’ stock holdings fell from 34% to 25%, while their private equity holdings jumped from 22% in 2021 to 30% in 2023.

When stocks plunged on Monday, with the S&P 500 and Nasdaq down 3%, wealthy investors neither panicked nor rushed to buy, several advisers said. They do have a lot of problems.

“The most common question from clients is ‘What happened?'” said Sean Apgar, partner and co-head of portfolio and wealth advisory at BBR Partners, which advises ultra-wealthy clients. “It was more out of curiosity; there was no real motive for action.”

Apgar said the clients BBR advises – most worth hundreds of millions or billions of dollars – don’t react to short-term market events because of their long-term investment horizons. However, they do want to know about market movements, Japan’s carry trade, growing recession fears and the possibility of a rate cut. To his clients, their investment plans remain their investment plans.

“The best thing clients can do now is sit back and feel comfortable with the investment plans we developed with them a long time ago and anticipate fluctuations and adjustments,” Apgar said.

Price declines on Friday and Monday also provided opportunities for wealthy investors to take advantage of tax benefits and gift strategies.

William Sinclair, head of JPMorgan Private Bank’s financial institutions group and U.S. family office practice, said a growing number of clients have so-called “separately managed accounts,” discreet accounts designed to hold specific assets or stocks. With separate accounts, clients can more easily sell stocks that have declined in value and realize losses that they can use to offset capital gains on winning stocks, known as “tax loss harvesting.”

With some big tech stocks down 15% or more in the past month, wealthy investors are selling at a loss, reaping tax benefits and buying back shares later to maintain their positions.

“For taxable clients, the biggest inflows are tax loss harvesting strategies,” Sinclair said.

Others take advantage of price fluctuations for estate planning purposes. Under current estate and gift tax rules, married couples can transfer up to $27.22 million to heirs and family members, while individuals can transfer up to $13.61 million. With gift and estate exemption amounts expected to expire at the end of next year, many wealthy investors are trying to give away the maximum amount before expiration.

Gifting shares that have declined in value provides additional benefits because it allows investors to gift more shares at the exempt amount.

“Say you have a stock that was originally worth $100 and is now worth $80, you can transfer that lower value to the next generation, assuming those assets will eventually appreciate again,” Apgar said. “So you’re taking advantage of the depressed value. .Tax advisors are generally excited about this environment because it opens up new opportunities.”

One group of clients more sensitive to recent volatility is composed of business founders and senior executives. Since much of their wealth is often tied to a single company stock, advisors can help them set up sophisticated hedges — such as variable advance forwards and exchange funds — to help dampen the blow of a sharp stock decline. Share price declines over the past week have highlighted the benefits of so-called “collar” structures for many founders and CEOs.

“The senior executives in these positions know that their jobs and their careers will be centered around equities,” said Jennifer Povlitz, U.S. director at UBS Wealth Management, which is owned by many. Concentrated stock provides advisory services positions to clients. “So the financial planning part has to be a consideration.”

While the S&P 500 is still up about 10% this year after rising 24% in 2023, ultra-wealthy investors and family offices are continuing to shift more money into alternative investments, especially private equity. Many believe that private businesses are more stable and profitable in the long run than stocks, especially after a day like Monday. They can have greater influence over management who hold direct shares in private companies.

“Most family offices have so much invested in alternatives, hedge funds, private equity and real estate that they won’t move,” said Geoffrey von Kuhn, an adviser to some of the largest U.S. family offices. invest.

Richard Weintraub, head of the Americas Family Office Group at Citi Private Bank, said family offices have been shifting funds toward long-term investments, which can last for decades or generations and are subject to volatility. Less sex. In addition to private equity and venture capital, a big trend among family offices is the purchase of shares or control of private companies in direct transactions.

“The larger family offices (more than $10 billion in assets) are putting money into operating companies so they can hold it forever and pass it on from generation to generation,” Weintraub said. “It’s like building the Buffett model.”

He added that the past week’s stock market rout “reinforced the idea of ​​turning to private investment.”

High-net-worth investors are still catching up to family offices when it comes to private markets and alternative investments, said Michael Pelzar, head of investments at Bank of America Private Bank.

“In general, I think high-net-worth investors are under-allocating to alternatives,” Pelzal said. “We see this (volatility) as a catalyst that allows high net worth investors to continue to expand their portfolios. I think after this week, people will be more open to alternative investments, both in private equity and real estate.” .

In terms of the overall investment climate, advisors say the biggest concerns for high-net-worth investors are geopolitical risks and financial outlays. Jimmy Chang, chief information officer at Rockefeller Global Family Office, said the most common question clients have is not about stock market volatility but the impact of government debt and deficits.

“They want to know the impact on tax planning and on the economy and markets,” he said.