Asset manager Robert Fraser says the ultra-rich have a completely different mindset when it comes to investing than the average person. “Most people only look at the public markets and have a 60/40 mindset when it comes to investing, meaning they put 60% of their money in stocks and 40% in bonds. Billionaires don’t think like that,” the co-founder and CFO of US-based Aspen Funds told CNBC Pro on July 3. Fraser’s company serves the ultra-high net worth and high net worth individuals around the world, and manages more than $500 million through Aspen Funds. He says the wealthy are always thinking about how to manage their money. “Billionaires have a balance sheet mentality. They try to increase their net worth by increasing assets and decreasing liabilities. They are very focused on net worth. Ordinary investors have an income statement mentality, they focus on earnings, and they see investments as a safety net.” According to Forbes, the number of billionaires in the world is on the rise, with 2,781 people expected to become billionaires this year, 141 more than in 2023. The magazine also noted that their combined assets will be $14.2 trillion, $2 trillion more than in 2023. Portfolio Allocation The strategies of the ultra-rich vary depending on the individual’s investable funds, Fraser said, revealing how individuals with around $1 million, $10 million and $100 million in investable funds typically allocate their funds. What is consistent, however, is that the majority of their investments are in alternative investments. That’s because alternative investments “have lower volatility than the public markets, higher returns, liquidity discounts, better tax benefits and are uncorrelated to the stock market,” Fraser explained.Alternative investments are assets that don’t fit into the traditional categories of stocks, bonds, commodities, and cash. These include real estate, private equity, venture capital, private debt, hedge funds, futures, cryptocurrencies, and even collectibles such as art, jewelry, and watches. Fraser noted the performance of the Yale University Endowment, which invests about half of its money in alternative investments, adding that the returns are also attractive. “The fund generated a 13.1% return in 2023 compared to 8.8% for a standard 60/40 portfolio,” he said. Fraser cited real estate as another asset class favored by the ultra-rich, many of whom own properties and earn rental income from them. Profits are also generated when real estate is sold and the profits are reinvested in other properties, he said. “Billionaires love real estate. Real estate offers benefits to owners, including inflation, depreciation, tax deferral, and growth through long-term capital gains,” Fraser added. “Transform your money from a soldier into an army” When asked how the average investor can incorporate some of these strategies when building a portfolio, this asset manager responded: Determine your liquidity premium for the next year and invest that amount in stocks and bonds. He suggests directing the remaining funds towards real estate. Start with single-family homes at first, and eventually diversify into industrial, multifamily and retail properties. He added that if investors find it difficult to buy real estate on their own, they can consider pooling funds with friends and family. “It’s good for the average investor, whether they qualify for real estate or not. As their assets grow, they can invest in private equity and possibly even venture capital and hedge funds like the super-rich do,” Fraser said. “The most important thing in this process is to find a way to transform your money from a soldier into an army that works for you,” he added.
