Where the Ultra-Wealthy Invest: Beyond the Stock Market

Photograph of Bernard Arnault

The world of the ultra-rich, often referred to as centimillionaires (individuals with a net worth exceeding $100 million), operates differently than the average investor. Forget chasing hot stocks or trendy cryptocurrencies. These high-net-worth individuals (HNWIs) prioritize wealth preservation and a long-term view when it comes to their investments. According to wealth experts, a key strategy for centimillionaires is diversification beyond traditional stock markets. Let's delve into some of the asset classes favored by the ultra-wealthy, using real-life examples,

Prime Real Estate

Brick-and-mortar remains a cornerstone for many centimillionaire portfolios. Michael Sonnenfeldt, founder of Tiger 21, a network of ultra-high net worth investors, estimates real estate comprises an average of 27% of these portfolios. These aren't your average fixer-upper flips. HNWIs target "trophy assets" – Class A properties in prime locations, typically built within the last 15 years. Imagine luxury apartment buildings in Manhattan or beachfront estates in Malibu. These investments offer steady rental income and potential for appreciation over time.

Take billionaire investor Sam Zell.  Zell is known for his savvy real estate investments, owning trophy properties like Chicago's Willis Tower (formerly Sears Tower).  This not only generates significant rental income but has also appreciated in value over the years.

Venture Capital and Private Equity

 Looking beyond established markets, centimillionaires often invest in startups and emerging companies with high-growth potential. This venture capital (VC) approach allows them to get in on the ground floor of promising businesses before they go public. Additionally, private equity investments target established companies not listed on stock exchanges, offering a chance for high returns and control over the investment.

Media mogul Oprah Winfrey is known for her angel investments in startups.  She has invested in Weight Watchers, a company she partnered with to promote healthy living, and SoulCycle, a popular indoor cycling fitness chain.  These investments not only aligned with her interests but also offered the potential for significant returns.

Luxury goods industry

Bernard Arnault's investment focus clearly leans towards the luxury goods industry. LVMH, the company he meticulously built through acquisitions and strategic mergers, stands as the prime example. From the initial acquisition of Christian Dior to the record-breaking purchase of Tiffany & Co., Arnault has solidified LVMH's position as the world's leading luxury conglomerate. This focus on high-end fashion houses, jewelry brands, and cosmetic companies has proven to be a successful strategy, generating significant returns and solidifying his position as one of the world's wealthiest individuals.

However, it's important to note that Arnault isn't solely confined to the world of luxury. Through his family holding company, Financière Agache, he ventures beyond his core business interests.  Agache invests in various sectors, with a particular focus on technology through its venture capital arm, Aglaé Ventures. This demonstrates Arnault's understanding of diversification and his willingness to explore high-growth opportunities outside of luxury goods.

Alternative Investments

The ultra-wealthy explore various alternative investments to spread risk and potentially earn higher returns. This could include art, classic cars, or even intellectual property.  Artworks by renowned masters like Picasso or Van Gogh can appreciate significantly in value over time, offering a hedge against inflation. Similarly, rare vintage cars can become valuable collectibles.

Amazon founder Jeff Bezos is a known art collector.  His collection reportedly includes a $165 million dollar painting by Alexander Calder, showcasing his interest in art as an investment asset class.

While these examples provide a glimpse into the investment strategies of the ultra-wealthy, it's important to remember that professional wealth management is crucial for managing such complex portfolios.  For the average investor, the key takeaway is the importance of diversification and a long-term investment strategy, though the specific asset classes may differ based on individual risk tolerance and financial goals.