During the GFC, the idea that the wealthy had a lot of cash “sitting on the sidelines” became very popular with wealth managers – it was partly a good excuse for the fact the sector wasn’t growing, and a good way of saying that there would be better times ahead.
However, while many commentators have questioned whether this sideline cash ever really existed, a new report from a London-based consulting firm Scorpio Partnerships suggests that the wealth managers and private bankers weren’t telling fibs.
The report, which examines the state of the global wealth management industry, says the world’s HNWIs have $US16.5 trillion invested with private banks and wealth management firms, which has actually climbed quite nicely from $US14.5 trillion at the end of 2008.
However, Scorpio argues these investors actually have assets worth up to $US26 trillion, so they’re keeping a large amount out of the hands of the wealth management crowd.
“This implies there is approximately $US10 trillion of high-net-worth assets that could be advised by banks,” the firm says. “Capturing these assets is the real answer for industry recovery.”
While we don’t really have an idea of how this awfully large amount of money is actually being deployed – given how smart the rich are, it’s probably not just sitting in bank vaults – the research does suggest that the rich are still taking a very cautious approach to investing, and particularly investing through wealth managers.
Given the recent volatility on global sharemarkets and lingering concerns about the strength of economic recoveries in North America, Europe and Asia, it’s hardly surprising the rich are hoarding cash.
However, not every wealthy entrepreneur has gone into their shell and more than a few are still busy looking for opportunities.
But there are no boring investment strategies here – racetracks, vaccines, gold mines and cocoa beans are just some of the asset classes attracting the world’s billionaires.
The bruising battle of the resources tax might have taken up a lot of Twiggy Forrest’s time in the last few months, but he has managed to branch out beyond mining.
Forrest currently owns just over 45% of Perth-based company Allied Medical, and is also a director of the company, which was spun out of Fortescue in 2005.
The company, which has focused on building a distribution business to sell medical devices (such as catheters and pain management devices) to Australian hospitals, has just launched a capital raising seeking to raise $4.4 million to start investing in biotech and life science companies. About $3 million of the capital will be used to buy a large stake in a Brisbane-based company called Coridon, which focuses on developing DNA therapy vaccines for the treatment of a variety of diseases, with a particular focus on cancer.
The company is chaired by Gardasil developer and former Australian of the Year Professor Ian Frazer, so Twiggy and his team are at least backing an expert with good form. Could this be the first step in Forrest’s path to becoming a key angel investor in the Australian biotech sector?
Billionaire Philip Falcone is best known a one of the world’s top hedge fund managers, but among his other privately held interests is a budding wireless network company known as LightSquared.
This week, the company announced it plans to invest $US7 billion over the next eight years to build wireless 4G network infrastructure to compete with incumbent market leaders Sprint Nextel, AT&T and Verizon Wireless.
Falcone’s hedge fund Harbinger has already contributed $US2.9 billion for the venture and wants to develop a nationwide network that will cover at least 260 million people in the next five years. But the estimated cost – a whopping $US10 billion – means Falcone will need to tap into public markets if he wants to pull his plan off.
Billionaire British brothers David and Simon Reuben are rumoured to be looking at potential investments in Australia’s highly leveraged unlisted property funds, but made headlines at home last week when they spent around $20 million buying 30 million shares in Arena Leisure, which operates seven racecourses around the UK. The brothers increased their stake in the company from 26% to 28%.
The brothers traditionally focus on property, so the investment might look a bit unusual. However, three years ago they bought another racecourse operator, Northern Racing for £90 million, so there has been speculation they may launch a takeover for Arena and merge the two businesses.
But it’s also worth remembering that racecourses are basically big patches of land with grass on them. Could today’s racetrack be tomorrow’s property development?
Mexican billionaire Carlos Slim, who was earlier this year named the richest person in the world, has a diverse range of interests including telecommunications and media. Last week he emerged as the buyer of a gold mining project in Mexico, which was sold by Canadian company Goldgroup Mining. Slim paid $25 million for the mine.
Alex Waislitz, the son-in-law of the late Richard Pratt, runs and owns the family’s investment vehicle, Thorney Holdings. The company (and its subsidiary Tiga) trades very actively, and one of its most recent investments was a $5 million punt on Coote Industrial. The buy took Thorney’s stake from 5.18% to 8.46%.
Waislitz will be looking for a strong turnaround from Coote, which currently trades at below 20c, but has fallen by 45% over the last 12 months.
You’ve probably never heard of Anthony Ward, a 50-year-old hedge fund trader from Britain. And he’s not exactly a billionaire, with a fortune estimated by Britain’s Telegraph newspaper at about £36 million.
But Ward is responsible for one of the biggest bets of the year by buying $US1 billion worth of cocoa beans, or 241,000 tonnes. According to reports, it’s enough to manufacture 5.3 billion quarter-pound chocolate bars.
Ward, who made the purchase through his hedge fund Armajaro Holdings, has earned the nickname “Chocolate Fingers” for his exploits in the cocoa and coffee markets. In 2002 he made £40 million in two months after buying 204,000 tonnes of cocoa when supply from West Africa fell due to poor harvests and political instability.
Ward’s latest trade pushed cocoa prices to their highest level since 1977.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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