Returns of super-rich in 2010 trailed S&P 500: survey

NEW YORK Tue May 17, 2011 4:53pm EDT

A model reads a magazine during the summer contingent of the Millionaire Fair of luxury goods in Moscow, July 4, 2010. REUTERS/Sergei Karpukhin

A model reads a magazine during the summer contingent of the Millionaire Fair of luxury goods in Moscow, July 4, 2010.

Credit: Reuters/Sergei Karpukhin

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NEW YORK (Reuters) - The very, very rich aren't better investors than the rest of us, according to a new survey of wealthy families.

Members of the Institute for Private Investors, a networking group of about 1,100 individuals with investable assets of at least $30 million, realized an average investment return of 11.3 percent in 2010, trailing the 15 percent gain of the S&P 500 Index.

The results track many studies that find active managers underperform passive index strategies, but the IPI also claims that 2010 was an anomaly.

Members of the group, who represent about 340 families, enjoyed a ten-year average return of 6 percent on their investment portfolios compared with the 3.6 percent return of the S&P 500, the group said.

The 79 respondents to the April survey appear to be more aggressive than average investors. One out of every five invested at least half their portfolio outside their home market last year and 28 percent had at least some money abroad.

The global allocations represent a big jump from the 12 percent who invested abroad in 2007, but are in line with results from the IPI's 2008 and 2009 surveys.

"Sophisticated private investors are essentially early adopters who typically lead the market," said IPI founder Charlotte Beyer.

About 42 percent of respondents to the April survey said they held some alternative investments in 2010. Hedge funds, on average, comprised about 19 percent of their portfolios, little changed from 2009 but off the peak of 24 percent reported in the group's 2006 survey.

The concerns of the very wealthy are more prosaic.

"Finding attractive yields" remain a major investment challenge in 2011, survey respondents said.

They also worry about inflation and weakness in the U.S. dollar, reflecting their overseas investments and the fact that 89 percent of IPI's members are resident in the U.S.

About 23 percent of respondents try to manage currencies or hedge currency risk. More than half use a currency overlay strategy or outside manager to help them, though 24 percent hedge directly with derivatives and 18 percent with exchange-traded funds.

Among other findings of the survey:

* Allocations to global long-only equity securities climbed to 14 percent of respondents' portfolios last year from 11 percent in 2009;

* Fixed-income holdings and cash dipped to 25 percent from 27 percent of respondents' 2010 portfolios, led by a 4 percent reduction in municipal investments from 2009.

(Reporting by Joseph A. Giannone; editing by Jed Horowitz)

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