Facebook generation 'Like' alternative investments

Elite Millennial investors – those with $1m or more in investible assets – are keen on alternative investments and private equity. But in Canada, this particular niche may be too small to focus on.

Facebook generation 'Like' alternative investments

Young wealthy investors are investing less in the stock market and more in alternative assets versus older investors. According to a survey of accredited investors by iCrowd, a venture capital social network, high-net-worth investors below 30 years of age are more than twice as likely to invest in private equity than older peers. 

Still, in Canada at least, it may be a challenge to find these wealthy young investors.

“That would be a very tiny group,” said David Coletto, chief executive of Ottawa-based Abacus Data. “People who would be able to fit that description in Canada are either inheriting a lot of money or are the Zuckerbergs of the world, those who have gotten rich really quickly. It would be such a niche that there would be no data; it would just be qualitative – finding a few of them and trying to generalize that to everybody.”

The 31-year old Coletto, who’s firm specializes in research on Millennials, says that it may even be too early to make any quantitative judgements about the investment preferences of his generation.

“There are so few Millennials who have really thought through their investment strategy at this point. If you look at the values of this generation they are generally more entrepreneurial – but with the recession and seeing the impact on their parents they are more risk averse,” Coletto said.

The iCloud data was collected from the niche group of the network’s own investor members. While that would make it impossible to extrapolate anything about Millennials in general, it does provide a snapshot of a small elite group.

"When it comes to investing, the Facebook generation takes a less traditional, and much more open approach than their parents did," said iCloud co-founder Brad McGee. "Young accredited investors are seeking diversified opportunities outside of traditional equities in order to protect and grow their nest eggs."

The survey confidentially polled a large sample of 18-and-older accredited investors - those with over $1 million in investable assets, excluding the value of a primary residence, or individual annual income exceeding $200,000.

According to the survey, 49% of young accredited investors, those aged 18-29, are currently invested in private company securities – such as private placements and angel investments – compared with 21% of 45-60 year olds.

Young accredited investors are also more interested in alternative investments.  The survey found that 18-29 year olds have allocated 7% to both private equity and hedge funds, in comparison with their senior counterparts, who have allocated only 4% and 2% respectively to the same asset classes.

And with an average of only 30% of young investors' portfolios in equities, as opposed to 48% of baby boomers, results suggest that the Facebook generation may be more receptive to less traditional asset groups.

Although wealthy millennials allocate less to stock market investments, they have a much higher opinion of the financial sector. The survey found that 22% of 18-29 year olds believe Wall Street firms act in their best interest while only 10% of 45-60 year olds and 12% of 60+ accredited investors indicated that they trust Wall Street firms.

In addition to there being few high-net-worth Millenials in Canada, there is also a dearth of active venture capital investors.

According to the Conference Board, Canada ranked 14th among 15 developed country peers on the venture capital report card and scored a “D” grade. Venture capital investment in Canada amounts to just 0.031 per cent of GDP – well below that of the U.S. and Sweden.

In 2011, just 444 Canadian companies were financed through venture capital funds, representing US$1.5 billion in disbursements. In comparison, the US state of California had venture capital disbursements totalling over US$14.4 billion in 2009.