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Ultra-wealthy families may face lower returns ahead

An investor looks at an electronic board showing stock information at a brokerage house in Shanghai March 14.

Aly Song/Reuters

Returns for ultra-high-net-worth investors such as wealthy families may be poised to decline, according to a new report by KKR & Co.

Gains could fall to 5.3 per cent from 9.3 per cent historically "unless portfolios are repositioned for the environment we think that we are entering," wrote the authors, including Henry McVey, KKR's head of global macro and asset allocation. "Ultra HNW investors must find new opportunities to harness complexity and dislocation to their benefit, allowing them to earn better returns than what typical indexes may deliver during the next five years."

The New York-based investment firm surveyed more than 50 family offices and other ultra-high-net-worth clients, defined as those with $30-million or more in investable assets, for the report, "The Ultra High Net Worth Investor: Coming of Age." The respondents' average net worth was $1.5 billion.

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"What struck us was the sheer size," McVey said Wednesday in an interview on Bloomberg Television. "Unlike an endowment that might be paying out 5 percent per year, there's constant cash flow coming in. So they are looking for ways to deploy that money."

Ultra-high-net-worth investors, including family offices, have earned strong returns in recent years in part because they deployed capital during market shocks such as the Chinese currency devaluation or U.S. debt downgrade. They're also increasingly investing globally and in private credit, according to the report. A fifth of the respondents said they hold at least 20 per cent of assets in cash, ready to put it to work when opportunities arise.

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