Second Passports are in Demand for the Ultra-Rich

Rich investors are uneasy.

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They are so anxious that they are waiting in line for second visas, but not to the point where they are abandoning tried-and-true businesses like private equity. Michael Sonnenfeldt, the chairman and founder of Tiger 21, a global network of over 1,200 high-net-worth investors with assets worth over $135 billion, says as much.

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Sonnenfeldt described the conflicting statements Tiger 21's members are currently putting out as "completely puzzling" in a discussion with Trade Algo.

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What he believes is happening in their thoughts and portfolios is as follows. For length and brevity, the passages have been trimmed.

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Question: What is the current state of the members' attitudes about risk?

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Answer: The general feeling is that we are dealing with more conflicting information than ever before, possibly with the possible exception of the Great Financial Crisis, when events moved so swiftly that you could hardly breathe. Because we are unsure of how to weigh wherever Ukraine is heading, things are progressing more slowly but are also more perplexing than ever. What is brought up most frequently in conversations is the extent to which the outcome in Ukraine gives China confidence to attack Taiwan, the hub of microprocessor manufacture.

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Many individuals are pondering how fragile the social systems that we take for granted are in light of the idea that democracy is unstable. Although people are confident in their own business decisions, they feel that there is a great deal of macroeconomic uncertainty as a result of the first war in Europe since World War II, China's actions, Iran, and Israel.

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The demand for second-country passports has to be at an all-time high, which is an intriguing trend. There are nations with programs in which you can apply for citizenship and acquire a passport all around the world, including New Zealand, Portugal, and various Caribbean islands. Similar to how Israel's right-wing government is causing instability, many Israelis are going to make sure they possess second passports due to the uncertainty in the US.

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With the upcoming election in 2024, it generates an optionality about which more people are worried than at any other time in history. Yet, a lot of these nations are gradually bridging the gaps.

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Question: How does that fit with the fact that cash allocations are smaller than usual?

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Answer: In a million years, I would have never foreseen that cash would decrease at this time when, as of the fourth quarter of 2022, more than half of members believed that a recession was imminent. During the past 15 years, cash has been the most stable allocation; at 12%, it's practically impossible to move. Hence, being at 10% is important. I believe that members have discovered some interesting private equity investments over the past year and have been prepared to temporarily borrow from their cash account.

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Question: Is real estate and private equity still where the majority of the members made their money?

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Answer: Members' share of public stock, private equity, and real estate is over 80%, which is the largest share in at least 15 years. A record-breaking 31% of member portfolios now contain private equity. PE was ten percent fifteen years ago. We believe that venture capital is the component of that allocation that is growing the fastest.

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As PE and real estate are where our members have made the majority of their fortune, it should come as no surprise that when it comes to wealth preservation, they turn to their areas of expertise. Members increasingly rely on their core competencies, which are fundamental business investments, as the situation becomes more perplexing. Members have this enduring faith in the "meat and potatoes" of business because long-term, reliable firms and real estate have delivered for them year after year, decade after decade. They feel the most secure and most ease there

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Recently, we were considering where to place some money that was recently distributed from some other investment in my own investing company. Normally, we'd want to use it right away, but for the first time in 20 years, we decided to invest it in Treasury notes for a period of six months. Six-month Treasuries now offer a 4.5% yield, making them a viable cash management instrument, exactly as they had been for generations prior to the past 15 years.

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Question: What share of the market do members have?

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Answer: It has decreased from 28% to 29% a year ago to 23% to 24%, primarily as a result of the value decline rather than people liquidating their assets. Members are divided on whether they anticipate an increase in the public market or down in 2023.

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In the past, high-tech businesses like Apple and Berkshire Hathaway dominated portfolios, but today's allocation is moving more toward indexes and ETFs. Members may have a weight in tech ETFs or some investment opportunities in tech businesses because they are long-term believers in technology but are also a little apprehensive about it.

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Question: How do participants see cryptocurrencies?

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Answer: Bitcoin and other cryptocurrencies make up 1% to 3% of portfolios. Those who consider themselves to have an in-depth understanding of cryptocurrency and favor it for these reasons are in it for the long haul and viewed the previous year as a purchasing opportunity. They didn't liquidate, even if they didn't double down.