The rich don’t know much about alternative investments, according to a new report, and they don’t much care to learn.
Just 18% of affluent investors—those with at least $500,000 in investable assets—say they understand hedge funds, putting them in between private placements (understood by 19%) and structured products (15%).
And the better than 80% who don’t understand, for the most part, don’t want to, according to the Spectrem Group survey. Just 9% say they are interested in hedge funds, the same number as are interested in structured products. Only 10% are interested in venture capital, and 11% each in private placements and futures.
“While hedge funds have been in the news like no other financial product recently, affluent investors still don’t feel they understand these alternative investments,” Specrtrem’s Catherine McBreen said. “This gap in understanding corresponds with a distinct lack of interest in hedge funds and other alternative investments such as structured products and private placements.”
McBreen added that financial service providers need to be more proactive in educating affluent investors about the risks and rewards in the alternative investment space given that investors are unlikely to “step forward themselves seeking more information.”
Educating the rich about hedge fund risks is a priority, according to the report. Asked which alternative investments were the riskiest, 39% of those polled picked hedge funds, followed by commodities (32%), precious metals (14%), private equity (8%) and real estate investment trusts (7%).