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Investing like an entrepreneur: 7 lessons from the Global Entrepreneur Report 2020
Between low interest rates and volatility in the equity market, the financial environment is uncertain today. What strategies do entrepreneurs prefer to protect their capital and unlock capital gains and better returns? To answer this question, the sixth edition of our Global Entrepreneur Report surveyed 1,132 entrepreneurs from 19 countries, examining the main trends in their private investments for the year 2019. Discover their key lessons.
1. The equities market remains the predominant asset class
Up 60% in five years: over the past few years, equities have appreciated significantly according to the S&P 500 index. Entrepreneurs invest up to 19% in the equity market. The result: significant potential for capital gains. In this context, it is no surprise that listed equities remain the number one asset in portfolios. However, the sharp increase in volatility, observed from 2018 onwards, is prompting shareholders to exercise a certain degree of caution, which is reflected in the diversification of their assets.
2. Entrepreneurs invest first in their business(es)
All entrepreneurs trust in their lucky stars. That's why they invest a large part of their wealth in creating their companies. They know their company inside out and are confident that it will perform better than the market average. Between 2018 and 2019, the proportion of their invested assets rose from 17% to 19%. This movement is attributable to the drop in bond interest rates, which lowered the overall return on portfolios.
3. Low rates encourage a certain diversification
Interest rates are low and likely to remain so. Of the 19 countries we surveyed, only three have key rates of 5% or more: India, Indonesia and Turkey. In five countries, these rates vary between 0% and 2%, while in eight other countries they are zero or negative. This situation is reflected in the behavior of entrepreneurs, who reallocated their share of bond investments from 18% to 14% in one year. How are these funds allocated? Preferably in favor of their company's securities, investments abroad, other unlisted companies, real estate investments and purchases of securities in other currencies.
4. Cash, a sense of financial security
Liquidity still accounts for 13% of portfolios, compared with 16% in the previous year. Entrepreneurs are keenly aware of the lack of return, but they also want to remain alert to investment opportunities. Above all, cash is seen as a low-risk asset.
5. Sustainable investment still proving its merit
Seventy percent of surveyed entrepreneurs are considering increasing the share of their portfolios devoted to sustainable investment. They understand that investors have a role to play in the environmental impact of companies. With only 4% of portfolios devoted to responsible funds, however, this is not yet a fundamental trend. How can this be explained? Of our surveyed entrepreneurs, 71% believe that by choosing sustainable investments, they will have to forego part of their return on investment. Nevertheless, 40% of them believe that over a period of five years or more, their gains may equal or outperform investments in other sectors.
6. Private equity to avoid market volatility
Low interest rates and an extremely volatile stock market offer little reassurance to entrepreneurs. Always interested in the life and development of companies, they look instead for capital gains in unlisted companies. They are willing to invest, even if it means locking up large sums of money for many years. This asset class allows them not only to diversify their portfolio, but also to escape the hazards of the financial markets.
7. Real estate, the appeal of specialized funds
Real estate is a tangible asset that protects against a possible return of inflation and provides regular income. It checks many boxes for investors, and high-income entrepreneurs have not been let down. Seventy-three percent of them invest in this asset class on a regular basis. In the face of growing market uncertainty, a significant rise in the share of real estate is likely to be seen in portfolios. In fact, it can be expected to rise from 10% to 18% of assets held. While entrepreneurs prefer direct ownership, in 2020 they have shown more interest in specialized funds or club deals, which bring together a small number of investors. Specialized funds enable them to diversify their real estate assets and, above all, to invest abroad by relying on the expertise of specialists, with the potential for a better return on investment.
Discover more about :
- BNP Paribas Global Entrepreneur Report 2020 - Part I
- BNP Paribas Global Entrepreneur Report 2020 - Global Outlook
- Social entrepreneurship
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