How do the Wealthiest Americans Invest?
Young, rich Americans don’t want to wait for cautious managers to decide what to do with their money.
- Eight of the 10 richest people in America are tech entrepreneurs with some of the companies they represent being no more than 25 years old.
When Jaime Schmidt sold her company Schmidt’s Naturals to Unilever for a nine-figure sum in 2017, it completely changed her life. “I understood the value of every dollar,” she says. “I’d grown up in the Midwest in a frugal household. For the first time, I was in a position of financial abundance with my family’s financial future secured.”
Back then, Schmidt’s investments didn’t stretch beyond making payments into her 401k. Today the picture is very different: she works with wealth managers to calibrate her investments in stocks and other traditional products, while also putting money into cryptocurrency and making bets via her own consumer brand-focused venture fund, Color Capital. She’s also paying her newfound wealth forward. In 2020, she and her husband gave away $100,000 in grants to small businesses struggling to stay afloat in the pandemic. It’s not the sort of portfolio your grandfather would have built — but that’s the point.
“My story is the perfect example of someone who was able to create generational wealth by following through on a business idea, [and] my greatest impact will be in enabling entrepreneurs,” she says.
Schmidt’s story is a classic of the American Dream genre, where entrepreneurship and a go-getter spirit can create new generations of family wealth (the reality, of course, is more complex). Eight of the 10 richest people in America are tech entrepreneurs with some of the companies they represent — Tesla, Google, Facebook — being no more than 25 years old. It’s the same story for America’s youngest billionaires, which include Airbnb co-founders Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, Facebook founder Mark Zuckerberg, and Coinbase founder Brian Armstrong, who outnumber the heirs and money managers on the list.
It’s a snapshot of how wealth is shifting from old generations to new, as more 50- and 40-somethings not only build wealth but inherit it from their parents. In North America, it’s estimated that 600,000 affluent individuals will transfer over $14bn to their children. Women will also account for an increasing share of ultra-high net worth individuals (UHNWIs) as the entrepreneurship gap continues to close and they inherit intra-generationally from their spouses.
New wealth, new world, new rules
America’s wealthy class is growing at a faster rate than any other country, with its population of millionaires growing 62% over the past decade compared to the world’s 38% average. But for this new generation, the rules of investing have changed. Persistent high interest rates have led investors to retreat to cash in recent years, but some more impatient HNWIs want to find new ways to make money.
Private credit is one example, with wealthy investors filling the gap Silicon Valley Bank left when it collapsed in 2023. In 2023, private debt funds had $1.7tn in assets under management, up from just $723bn in 2018. “It’s become a mainstream investment product for family offices and UHNWIs over the last five years, and some of that is a function of the desire to pick up yield in what was a really low interest rate environment,” says Martim de Arantes Oliveira, a managing director at wealth manager Geller.
Allocations to alternative asset classes like secondaries, and sectors like infrastructure and healthcare are also interesting to this group, says Marah Marshall, Head of EQT’s Private Wealth Global Partnerships & Strategy. Their specific choices are often influenced by their personal philosophies — with younger people expressing a strong desire for their wealth to have a positive impact on the world — and their prior career experiences.
“As the generational wealth transfer happens, people are looking not only for risk-reward, returns or premiums. They're looking to make sure that what they're investing in is good, or has a value that they share,” she says.
Arizona-based tech director Raj Nijjer was an early employee at companies like domain registry business GoDaddy and affiliate marketing startup Refersion, where he received equity stakes. After the companies exited, he worked with an advisor to manage the influx of cash. “But a few years ago, I started doing it myself,” he says.
He wasn’t worried about the bank’s fees — instead, he wanted to leverage his tech sector expertise and passion for entrepreneurship to make more nuanced calls. Today Nijjer’s portfolio consists of stock, with a particular focus on large-cap US tech, real estate, and stakes in early-stage startups. Angel investing represents a significant portion of his investing these days and one company he has backed, a marketing tech startup called Frederick, has already been acquired by a bigger competitor. “I know what I know really well, and I want to be involved with it,” he says.
Playing catch-up
Wealth managers who don’t catch up to this paradigm shift risk losing out as new governance structures are created to pass wealth down the generations. Between 2019 and 2023, the number of family offices around the world rose 21%, from 1,285 to 4,592, with the U.S. being home to almost 37% of the total. “We’re seeing a huge number of family offices being created that didn’t otherwise exist,” says Gabriel Estevez, a banking partner at Taylor Wessing who works with U.S. HNWIs. “And with that comes a lot more scrutiny of what the investments are.”
The ongoing democratization of financial services, plus the ability for ChatGPT and other AI tools to summarize, compare, and critique investment strategies and targets is only going to pile on the pressure. America’s newly wealthy will also be forming opinions of where they think the best opportunities lie in the market — and their investment managers had better be ready. Nijjer says he has plans to make residential real estate purchases later this year as prices continue to fall. “There’ll be blood in the streets,” he says, referencing Baron Rothschild’s contrarian motto. “By end of year, it’ll be a great time not just for stock picking but purchases for investments and for pleasure.”
What wealthy Americans want: The view from EQT
What’s on the minds of family offices and wealthy investors right now?
Family offices are all over the board when it comes to their allocations at the moment. Some are diving in, while others are pulling back or even sitting out a vintage. They may have gone a little commitment crazy during the last 24 months, and they aren’t seeing exits to get cash back or get calls for cash to work. It’s a cash flow challenge.
Elsewhere, in the U.S. market there’s a broad swathe of wealthy individuals, from the billionaire club to the sub-millionaire club who didn’t have access to private investment but now do through evergreen strategies available to accredited investors. It’s more palatable for HNWIs, and you can do a $10,000 ticket versus before where you needed [at least] $5m to commit. With evergreen funds, you are fully called and the cash can go to work quicker.
Where else are wealthy Americans putting their money these days?
[Interest rates] is something we talk about a lot. They're saying I can get 5% on my money market account, so if you’re presenting an evergreen product in private equity, you’ve got to give them a little extra return. A mid-teens return profile is what they’re going to be looking for versus several years ago when interest rates were at 2% or 3%.
They’ve been putting their money in private credit, because of the returns versus risk-reward profile, and secondaries, because they can mitigate the initial J curve [by investing in young companies] that already have a valuation. Secondaries will continue to be a popular way to get people into alternatives. Advisors are also asking us about infrastructure, which is not just bridges and toll roads, it's [how you] get products to your front door in 24 hours or less and how you get internet to your home so you can work. People have a lot more awareness of where things are coming from in terms of the infrastructure.
How is the wealth transfer playing into this?
Young people want to do good with the money, and doing good to them means things like giving back to their local communities, whether it may be to arts or science programs that might have been cut, or it could be giving back in the sense of investing in energy-efficient solutions. They look at the money as a responsibility they've been given by the family, but also with the responsibility of giving back because they didn't earn it themselves.
For younger people who are the first in their family to come into wealth, how do their investment portfolios differ?
First generational wealth folks are gatherers. They take more risk to grow and gather wealth, and they’re more willing to place some interesting bets and follow their passions. Second generation tend to do less risk taking and more preserving of what they’ve been given, although they do continue to grow their assets. Third generation are stewards, trying to protect the original core wealth and do good (either passion-based or investment-wise) with the proceeds it spins off.
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