INTERVIEW: Why The Ultra Wealthy Increasingly Want To Own Tangible Assets

Harriet Davies

7 November 2012

Jeffrey Sica made investment in tangible assets a bedrock of the firm he founded in 2010 because he believed – and continues to believe – that entrepreneurial and wealthy clients will always seek out these assets.

Before founding SICA Wealth Management Sica was a managing director at Wells Fargo, running the SICA Financial group. He made the move in May 2010, bringing around 95 per cent of his clients and a good percentage of staff with him, he told Family Wealth Report.

It’s a “very different” environment, he says, “we are no longer brokers we’re an RIA." What's more, holdings in real estate and private equity "are a major component" of Sica's firm, which manages a $2.5 billion fund that is co-branded with a real estate firm. “Most of our clients are multi-generational families and family businesses," he says, and these are looking for “a private banking experience, a family office experience.”

Tangible assets versus public markets

On the investment side, this means looking beyond the traditional 60:40 portfolio of stocks and bonds. And while very wealthy individuals have always held real assets, Sica says this trend has accelerated in recent years. “The vast majority of high net worth individuals were not happy with standard investments in stocks and bonds,” he says, as there is “tremendous lack of confidence” in public markets. On the other hand, tangible assets "always made sense” to him.

He believes this has been exacerbated by both "the zero interest rate policy", which has “eliminated the ability to produce yield” and the perception that there’s been a “tremendous amount of manipulation” in the stock markets. “The dollar damage has been reversed but high net worth individuals might wonder: are machines running the market?”

This search for tangibility in a world that seems ever more complex and digital does emerge in some data. For example, in Tiger 21’s most recent member asset allocation figures, 15 per cent opted for private equity as their favorite investment, while 11 per cent chose real estate. In Tiger 21’s earlier study in April members said they were “leery of the public markets.”

As an indicator of the US stock market’s performance and volatility last year, the S&P 500 ended flat (based on stock prices alone) but with major differences by quarter as markets were rocked by economic and political crises; it rose 11.15 per cent in the fourth quarter, for example.

Real estate and the crisis

However, real estate has not been without its issues. The bust in 2006 that deepened in 2007 severely tested people's faith in the housing market and spread to the wider economy through the subprime crisis, dragging the financial sector in its wake as a number of banks’ loan portfolios went under.

According to Sica though, to view real estate in such broad terms (such as headline figures) is unhelpful from an investment perspective. “What’s fascinating about real estate is that people put real estate under a big umbrella,” he says. “You just can’t look at investments…there will be ebb and flow…but there were private markets before there were public markets. There will always be innovation, entrepreneurs…I don’t think it will be short lived.

“The public markets will always have a place but the private markets have regained their place as the space where entrepreneurs live,” he added.

Liquidity

Liquidity has been “the one pitfall” in Sica’s strategy, he says. “When you have this level of uncertainty there will always be concern about giving up liquidity.”

However, notwithstanding clients’ desire for liquidity he is optimistic that they will continue to want assets that are tangible, that produce income and goods even (in the case of businesses), and that are related to wealthy investors’ own passions and experience that they accrued along with their fortunes.

These clients are highly sought after and get “a lot of conflicting messages from institutions,” he says, “but they’re tired of packaged products. They want to invest differently.”