Super rich investors cautious as markets surge

By Dan Wilchins

GENEVA (Reuters) - Stock markets are soaring to new highs but wealthy investors are not rushing willy-nilly into risky investments as many recall the market declines of the recent past, private banking heads in Europe and the United States said.

The United States' Dow Jones industrial average .DJI reached an all time high on Wednesday, but the days of high net worth investors, industry parlance for the super rich, placing 100 percent of their assets in telecom stocks and venture capital are gone, bankers said.

"There's a growing understanding that returns will be in the single digits, not the double digits over the long term," said Marianne Hay, chief executive officer for global wealth management-Europe at Citigroup (C.N: Quote, Profile, Research, Stock Buzz), speaking at the Reuters Wealth Management Summit.

It wasn't always that way.

"In the dot com era, (high net worth investors) just wanted returns," said Tom Kalaris, chief executive of wealth management at Barclays.

Now, said John Thiel, head of the private banking and investment group at Merrill Lynch MER.N, "the focus is more on capital preservation, and achieving more moderate gains with lower volatility."

In short, wealthy investors are a different breed now: they think more about longer term financial objectives and diversification, and less about generating outsized returns each quarter.

"Ten years ago, if you tried to talk to a client about risk, it was very difficult to make it clear to them exactly what markets can do. But now they are more willing to say to themselves: 'How much risk do I need to assume to meet my life objectives?,'" said Tom Dicker, head of portfolio management for high net worth individuals in New England at the Mellon Private Wealth Management Group in Boston.

A SHORT MEMORY?

Risk tolerance among clients can vary dramatically. Many Greek shipping magnates, for example, are risk averse in their financial investments, and reinvest most of their assets back in their ships, Citigroup's Hay said.

But human nature has not changed completely. There is some evidence that wealthy investors' assets are slowly drifting into equities and other risky investments. In 2005, some 30 percent of high net worth investments were in equities, up from 28 percent in 2004, according to a report from Capgemini consulting and Merrill Lynch.

Alternative investments, such as hedge funds and private equity, rose to about 20 percent of clients' assets in 2005, from 19 percent the year before, the report said.

And if markets stay high, clients may very well pour more assets into riskier investments, bankers said.

"I was in Asia after (market declines in) 1998 and 2000, and the risk appetite decreased a lot, but they are moving again now to more risk...The capability of forgetting a difficult past is real," said Patrick du Saint, head of private banking-Switzerland at BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz).