Holding a high allocation to cash in portfolios could be costly for ultra high net worth (UHNW) investors, who are likely to be losing out on significant investment returns, UBS has warned.
The Swiss bank’s report ‘The Great Opportunity’, focused on the unique investment advantages available to UHNW investors and found a large cash exposure could be holding them back.
The analysis, which was based on the average self-managed portfolio, showed many investors maintained high allocations to cash, often around 35% of their total portfolio.
Cash has returned 1.1% on an annualised basis over the past decade, which UBS has said creates a ‘significant drag’ on the performance of UHNW investment portfolios.
With this in mind, UBS has looked at what a UHNW investor could have held in their portfolio instead.
An even split of private equity and hedge fund investments would have generated a 3.8% return on an annualised basis and 45.1% over the decade.
In 2016, that combination would have returned 9.3% while cash stood at 0.8%.
Commenting on the report findings, Simon Smiles, CIO UHNW at UBS Wealth Management, said: ‘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.
‘Whether that is using liquidity to their advantage, capitalizing 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.’