Investors increasingly view alternative investments, including hedge funds and real estate, as a safe investment due to their low correlation with the stock market, according to the 2003 World Wealth Report, published by Merrill Lynch and Cap Gemini Ernst & Young.
Last year, high-net-worth individuals invested 10% of their assets in alternative investments, according to the report. "However, the [greater] the wealth, the greater the proportion of alternative investment products in the portfolio," said James Gorman, president of Merrill Lynchs global private client group. "This report highlights the need for diversified asset allocation. It is one way that high-net-worth individuals have been able to maintain their wealth during volatile markets."
Hedge fund assets grew 8% last year to $650 billion, according to the report. Although that was markedly down from a 34% surge in hedge fund assets in 2001, hedge funds are projected to reach $1.5 trillion by the end of 2010, according to the report.
Wealthy investors also favored real estate; luxury collectibles, such as art and wine; and precious metals, including platinum and gold.
The report also found that the number of high-net-worth individuals defined as those with $1 million in financial assets, excluding real estate grew 2.1% in 2002 to 7.3 million people. Combined, they represent $27.2 trillion in wealth.