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Scotia Wealth Management

Isn’t it rich!

No hard and fast rule

August 30, 2018

Scott Fitzgerald1: The rich are different from you and me.
Ernest Hemingway: Yes. They have more money.

This exchange, though widely quoted, may be apocryphal. But F. Scott Fitzgerald’s comment, published in his famous short story The Rich Boy – rather than the jaunty response it is said to have received – is perfectly true in many respects. The rich, and by rich I mean high-net-worth (HNW) individuals with investable assets of a minimum of $10 million and – often – considerably more than that, are different from you and me. How?

  1. In the way they structure and manage their portfolio.
  2. In the range of professional help they deploy to do so.

Tiger 21

You may not have heard of Tiger 212. Tiger 21 is an acronym for The Investment Group for Enhanced Results in the 21st Century. It provides its members with, as the organisation states on its website, ‘a close-knit network to discuss topics that matter most. It’s like having your own personal board of directors made up of visionaries, executives, entrepreneurs, and investors; the best minds and resources in the world.’

Tiger 21 has 600+ members, drawn from every industry, who collectively manage more than $50 billion in personal assets. Their mission, ‘is to help members improve their investment acumen, tackle common issues of wealth preservation, manage family-related challenges, and understand everything from estate planning options, to philanthropic endeavours.’

Tiger 21 is, in other words, a high-powered extended think tank for the wealthy. It provides a forum for the exchange of ideas, insights and, to quote again from their website, ‘peer engagement.’

Blue Ridge

Terry Cain3, writing in The Globe and Mail (August 2, 2018) – How do the wealthy stay that way? They don’t invest like the rest – made reference to one Canadian firm that is associated with the Tiger 21 network: Montreal-based Blue Bridge.

Mr. Cain alludes to the views of Ronald Mayers, senior vice-president of wealth management at Blue Ridge4, ‘who says his firm takes a much different approach to investing for (HNW) investors, as they can access far more investment opportunities. These include private equity, venture capital, high yield debt, infrastructure, real estate, agriculture, commodities, currencies and hedge funds.’

Investment breakdown of Tiger 21 membership

As part of his story, Mr. Cain disclosed a breakdown that revealed how the members of Tiger 21 were invested – the numbers are approximate – in the first quarter of 2017:

  1. Real estate, 30%
  2. Public equities, 23%
  3. Private equities, 21%
  4. Cash and cash equivalents, 10%
  5. Fixed income, 9%
  6. Hedge funds, 5%
  7. Commodities, 1%

These categories of investments – by no means inaccessible to those with more modest levels of investable assets – often deliver returns that are superior to more widely available investments.

It’s not a surprise that real estate – many of the members of Tiger 21 made their fortunes as real estate entrepreneurs – plays a key part in the portfolios of (HNW) investors. Real estate, Tiger 21 members would largely agree, provides a unique degree of diversification – in the sense that real estate values do not closely parallel the ups and downs of stock and bond markets.

The family office approach

According to Mr. Cain, Blue Ridge takes a family office approach to managing the affairs of their high-net-worth clients.

This is an ultra comprehensive and highly tax-efficient treatment of wealth that involves, in addition to portfolio and investment management, the on-going involvement of lawyers and accountants and other specialists.

Their collective responsibility is to integrate investment management with tax and estate planning, business succession, philanthropic considerations, and family governance objectives. Simply put, this is total wealth management on steroids.

Conclusion: the issue of risk

‘One decision wealthy investors must make,’ Mr. Cain reports, ‘is whether they are willing to accept more risk while seeking higher returns, or are more interested in preserving wealth.’

While the conventional wisdom is that HNW investors tend to be risk averse – they’ve already got plenty, so risking even the partial loss of what they’ve acquired doesn’t make sense – this is not uniformly true.

Those with more accumulated assets than they need for living, retirement, legacy creation and intergenerational wealth transfer are, arguably, less willing to take the kind of risks that might put their fortune in jeopardy. Others with less to lose tend to be more aggressive.

There is, for the very rich apparently, no hard and fast rule.

1 https://en.wikiquote.org/wiki/Talk:F._Scott_Fitzgerald
2 https://tiger21.com/membership/about-tiger-21
3 https://www.theglobeandmail.com/investing/globe-wealth/article-how-do-the-wealthy-stay-that-way-they-dont-invest-like-the-rest/
4 http://bluebridge.ca/en/services/

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This publication has been prepared by Scotia Capital Inc. and is intended as a general source of information only and should not be considered as personal and/or specific financial, tax, pension, legal or investment advice. We are not tax or legal advisors and we recommend that individuals consult with their qualified advisors before taking any action based upon the information contained in this publication. Opinions and projections contained in this publication are our own as of the date hereof and are subject to change without notice. While care and attention has been taken to ensure the accuracy and reliability of the material in this publication, neither Scotia Capital Inc. nor any of its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of such material and disclaim any liability resulting from any direct or consequential loss arising from any use of this publication or the information contained herein. This publication and all the information, opinions and conclusions contained herein are protected by copyright. This publication may not be reproduced in whole or in part without the prior express consent of Scotia Capital Inc.