Comparing High-Net-Worth and Institutional Investors

Denver Business Journal - by Richard Todd

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Consider +3.39 percent versus -1.26 percent.

These percentages represent the annual returns of the average institutional investor and the average high-net-worth investor, respectively, in the 10 years ended Dec. 31, 2008.

Some may argue this is an apples-and-oranges comparison, because the objectives of high-net-worth investors are different than most institutions.

After all, high-net-worth investors’ nonretirement plan assets are subject to taxes; their time frames are shorter and theoretically more conservative. They may need more income from investments, and they have smaller asset bases.

While all of these items are true, our studies indicate that institutions outperform on a risk-adjusted basis, in good markets and bad, in short-term periods and for the longer term.

We believe there are several clear differences in approaches between these two types of investors, and high-net-worth investors would improve their investment performance if they followed the way of most institutions.

Institutions typically have very clear goals and objectives. Portfolios for foundations and endowments are designed to meet spending policies, and defined benefit retirement plans to meet actuarial assumptions. The downside risk of their portfolios is often quantified.     Read More...