Real Estate: Elite Entrepreneurs show contrasting risk perceptions

Elite Entrepreneurs’ perception of investment risk differs greatly according to age and geography, the 2020 BNP Paribas Wealth Management Global Entrepreneur Report can reveal.

The study, which surveyed 1,132 business owners in 19 countries worldwide, provides detailed insights into how Elite Entrepreneurs are fine-tuning their investment strategies in response to heightened market uncertainty.

Respondents possess a combined wealth of $18.2 billion, and more than half of these Elite Entrepreneurs view real estate as a relatively low-risk asset class. Boomerpreneurs - those aged 55 or over - have the most confidence in bricks-and-mortar and allocate 14% of their portfolio to real estate.

In Asia, the belief in “safe as houses” is especially strong, with 12% of entrepreneurs’ wealth tied up in real estate, and 15% allocated to stocks. A contrasting viewpoint can be found in Europe, where entrepreneurs are four times more likely than those in Asia to perceive real estate to be highly risky, particularly in the Netherlands (39%), Luxembourg (31%), Switzerland (27%), Germany (26%) and Italy (26%).

Overall, 85% of respondents don’t believe their real estate investments are “very risky” despite being an illiquid asset class, while among Asian entrepreneurs this rises to 95%.

With global economic growth in 2019 the lowest for a decade and another difficult year forecast for 2020, there’s a clear generational divide among Elite Entrepreneurs when it comes to risk perceptions.

As well as being more comfortable with investing in real estate, Boomerpreneurs also have faith in fixed income, with around 60% perceiving bonds to not be that risky. A similar percentage of Millennipreneurs, whom the report defines as entrepreneurs aged 35 or under, have the same attitude towards the likes of bonds.

Yet Boomerpreneurs are markedly less confident in the stability of their own businesses (40%) than Millennipreneurs (31%). More broadly, Boomerpreneurs are typically happier allocating money to traditional investments and sceptical about relatively newer asset classes such as private equity, angel investments and hedge funds than their younger counterparts.

Interestingly, both Millennipreneurs and Boomerpreneurs believe stocks carry greater risk than angel investments despite the latter involving buying into relatively fledgling businesses. Listed companies, in contrast, have a far longer track record.

Ultrapreneurs are defined as Elite Entrepreneurs with investible assets of at least $25 million and are noticeable for allocating a substantially larger portion of their wealth to their own businesses – 27% versus the survey average of 19% - a trend BNP Paribas executives attribute to heightened economic uncertainty. Asian Ultrapreneurs seem to feel this more acutely, and those from China hold 35% of their wealth in their own companies.

Currency fluctuations are another key influence on risk perception – overall, 43% of Elite Entrepreneurs fret about FX volatility. This rises to more than 50% in China, Hong Kong, Singapore, and Britain.