Are wealthy private investors still suffering from a crisis of confidence harking back to the 2008-2009 meltdown? It would seem so, judging from a new survey of 50 large family office representatives by Citi Private Bank.

Family office survey findings

The poll found a strange dichotomy in the views expressed by the respondents. While 65% felt that the market would gain by 10% over the coming year, this optimism was not reflected in their portfolios – these showed that the lion’s share of the respondents had allocated less than 30% to public stocks.

And because 60% of these same investors believed that U.S. interest rates would rise 50 basis points in the coming year, not surprisingly, their portfolios had a minimal 17% allocation to bonds.

The implication? These wealthy, sophisticated investors were sitting on cash that made up as much as 40% of their portfolios!

Steven Wieting, Global Chief Investment Strategist at Citi Private Bank commented, “Using these weightings, our own return expectation for such a portfolio – with the remainder a very large implied overweight to cash (a shade below 40%) comes to just 4.4%. This matches what we at Citi Private Bank observe generally among end investors: very high cash holdings, with a current asset allocation unlikely to achieve return targets…What does this all suggest? In our view, under-invested bulls.”

Stock market improving

In an incisive comment on how out-of-sync these top-drawer investors may be with market valuations, Wieting says, “In the U.S. stock market, EPS this year may be nearly 30% above 2007’s level, yet share prices are just over 10% higher than 2007’s peak, as Figure 1 shows. Valuations have actually fallen during the age of quantitative easing and while profits are likely to grow slowly— unlike 2007— the U.S. economic expansion isn’t over.”

1-s&p500-eps Family office

According to Wieting, this money is sitting on the sidelines because “investors have doubted the sustainability of huge profit gains seen at the start of the U.S. rebound.”

Government shutdown and debt ceiling

Also, the broad economy is seemingly much more confident than these private investors. Wieting points to the fact that the economy has weathered the fiscal tightening this year, as well as the debt ceiling and shutdown imbroglios, with relative equanimity – in other times events such as these would have triggered a serious slowdown. Not to mention the financial markets that simply took the shutdown in stride.

Says Wieting, “While investors have witnessed the impact that financial deleveraging (including a dramatic rise in bank equity capital and large declines in consumer debt burdens) has had on economic growth in recent years, they haven’t fully accepted the benefits in terms of safety and durability.”

Quite obviously, the rich still have 2008 in their rear view mirrors.