Risk Perception and Diversification Strategies — Insights into the World of the Highly Wealthy

Time and again, prominent high-net-worth individuals get involved in spectacular ventures that seek to push the boundaries of the usual or even the possible - among them, for example, Elon Musk, who not only wants to supply the ISS with SpaceX, but also to colonize Mars, or the hardly less ambitious Larry Page and other Google executives, who are investing substantially in the exploitation of space resources. But are these typical investments for the ultra high net worth individual group?

A series of studies, the only one of its kind to date, provides answers to these and other questions relating to the risk and asset strategies of high-net-worth individuals. In addition to the attitudes and strategies of the wealth holders, it also documents assessments by close confidants: the family officer. Some excerpts from the findings of several years of research, to which more than 100 participants contributed, are summarized in this article.

Risk appetite

Indeed, for many high-net-worth individuals, entrepreneurial ventures are fundamentally part of their self-image. Only 30 percent say they prioritize asset management over active entrepreneurship, and only 16 percent give more weight to preserving existing assets than to starting new activities. Entrepreneurship and innovation are in many cases a fundamental part of identity. Accordingly, the willingness to take deliberate risks remains unchanged for the majority: Only around one-third of respondents say they are less willing to take risks in managing their own assets today than before 2008, compared with twelve percent who report an increase in their willingness to take risks. There is a striking discrepancy between the risk appetite of wealth holders with a core business focus and those who are not (or no longer) active as entrepreneurs: While only one in four high-net-worth individuals without entrepreneurial activity report increased restraint, 54 percent of owners of a single family-owned core business say they are taking fewer risks today.

The latter appear to be much more affected by developments in the context of and as a result of the financial crisis. This is probably due not least to their significantly more limited flexibility: The company's risk profile is primarily determined by market conditions,