Portfolio Design: A Modern Approach to Asset Allocation

ULTRA HNW PORTFOLIOS

Ultra HNW investors are in a somewhat different investment world than the rest of us. Those investors are able to tie up capital for extended periods of time, so the world of venture capital and private equity is open to them. At what wealth level do such investments become possible? Some brokerage firms define ultra HNW investors as having as little as $20 million or $30 million in wealth.9 But it’s not clear that an investor with $20 or $30 million could afford to tie up 10 percent of the portfolio in an investment that would be illiquid for 10 years or more. Certainly such an investor could not obtain much diversification within the private equity portion of the portfolio, since the minimums for investment in venture capital or buyouts would preclude more than one or two investments (if the total amount to be invested was $2 or $3 million). In any case, our definition of the ultra HNW investor will be made in terms of eligible investments rather than in terms of wealth. An ultra HNW investor is any investor who can devote 10 percent or more of the portfolio to private equity or other illiquid investments. This definition is useful because we are primarily interested in portfolio performance rather than levels of wealth per se.

Since many ultra-HNW investors can obtain sufficient diversification of hedge fund investments by directly investing in hedge funds, the Credit Suisse/Tremont Hedge Fund index will be used to measure hedge fund performance rather than ...