There is little direct empirical evidence on the investment behavior of wealthy households. Based on a proprietary database of investment portfolios and returns, we document three new facts. First, wealthy households hold a larger share of alternative investments, such as private equity and hedge funds, and a lower share of liquid assets, such as public equities. Second, returns and risk-adjusted returns increase at the top of the wealth distribution, by a larger margin in risk-adjusted terms. This is driven by higher risk tolerance and better diversification. Third, we show that returns on alternative assets in particular are increasing in wealth.
Financial Markets Group Discussion Papers DP 885