Wealthy investors are capitalizing on stock market declines for tax savings and estate planning opportunities, according to wealth advisors. Amid a trend of moving from public to private markets, many affluent investors and family offices have already decreased their stock investments. This shift comes amid concerns about the tech sector overheating.
A UBS survey revealed that family offices have 35% of their portfolios in private equity, which is higher than their 28% in stocks. A Deloitte survey showed a decline in family office stock holdings from 34% to 25% between 2021 and 2023, while private equity investments rose from 22% to 30% during the same period.
During a recent market drop, with the S&P 500 and Nasdaq falling by 3%, wealthy investors remained calm and inquisitive rather than reactive. Sean Apgar from BBR Partners noted that ultra-wealthy clients were more interested in understanding market dynamics rather than making immediate changes to their long-term investment plans.
The market downturn provided an opportunity for tax-loss harvesting and estate planning. William Sinclair of J.P. Morgan Private Bank mentioned that many clients utilize separately managed accounts to manage specific assets and capitalize on losses to offset capital gains. This strategy, along with gifting depreciated stocks to benefit from current estate tax exemptions, is increasingly popular.
Corporate founders and executives, with significant stock holdings in single companies, are more sensitive to market volatility. Advisors suggest complex financial strategies, like hedging, to mitigate risks associated with stock price fluctuations.
Despite the stock market’s overall positive performance, ultra-wealthy investors and family offices continue to allocate more funds to private equity, seeing it as a more stable and profitable long-term investment. Geoffrey von Kuhn, advisor to major family offices, emphasized their commitment to alternatives, including hedge funds, private equity, and real estate.
Richard Weintraub from Citi Private Bank highlighted the trend of family offices investing in private companies they can manage over generations, inspired by models like Warren Buffett’s. This approach aims to reduce volatility and ensure long-term growth.
High-net-worth investors are gradually catching up with family offices in diversifying into private markets. Bank of America’s Michael Pelzar sees recent market volatility as a catalyst for broader investment strategies. Meanwhile, Jimmy Chang from Rockefeller Global Family Office noted that affluent clients are more concerned about geopolitical risks and government fiscal policies than market fluctuations.
