Orange County’s wealthiest have softened their hard charging views in the past 18 months.
“They’re certainly reassessing what is meaningful to them,” said Ed Levin, who is managing director of wealth management at the Newport Beach office of UBS.
“For some of our clients, a few years ago, they were focused on growing their business. Over the last 15 to 18 months, we’ve heard from clients who miss being with family. People are recognizing that life can be short. It’s not all about the hottest new stock.”
The Business Journal asked wealth advisers who manage the money of high-net-worth individuals about the newest trends among OC’s richest in areas like asset allocation, leveraged artworks and even favorite restaurants.
What follows are their responses:
Asset Allocation
During the 2008 financial crisis, the rich raced for the safety of bonds.
In March 2020, there were initially a lot of conversations about shifting out of equities as the markets plummeted.
However, a different mindset quickly emerged, the advisers said.
“Investors became more aggressive after COVID began,” said David Bahnsen, CEO of Newport Beach’s Bahnsen Group, which has $3 billion in assets under management. “There was more opportunistic buying.”
Nowadays, the wealthy are reducing their allocations in bonds and municipals, which while albeit safe, have low returns that might be eaten up by pending inflation. They also don’t want to be as reliant on the stock market so they are moving more resources into what’s known as alternative investments such as private equity, distressed debt and real estate including multifamily apartments or warehouses.
“We’ve had a significant uptick in commitments around alternative investments,” said Ethan Morgan, who leads J.P. Morgan Private Bank’s business across Orange County and San Diego. His regional business, which has grown 64% since January 2020, currently oversees more than $9.9 billion in client assets.
Investors are also looking at more investments that focus on sustainable or social benefits, which can make an impact and also provide a nice return, he said.
“There’s so much hidden wealth and new wealth being created” in Orange County, Morgan said.
The rich have increased their wealth by 40% to 60% from the low of the pandemic, estimated Whit Batchelor, a senior vice president at the Newport Beach office of Whittier Trust, which has $16.2 billion in assets under management.
“A common theme is that in this post-COVID environment, regardless of what happened to their asset classes, most of those people are substantially better off than pre-COVID, say January of 2020,” Batchelor said.
Tax Hike Prep
President Joe Biden’s talk about increasing taxes has the uber wealthy looking at their options, such as whether to sell their businesses and other assets and when to transfer their wealth to their children.
“Affluent families are thinking strongly about it,” Batchelor said. “We’re seeing a lot of assets change hands.”
The richest may get a double benefit by selling their assets now when many valuations at all-time highs and the tax savings may be greater now than waiting a year when a tax hike might occur, Batchelor said.
Fleeing California?
The uber rich are fleeing California, according to some circles.
“In both Orange County and New York City, the favorite hobby seems to be leaving and not coming back,” Bahnsen quipped.
California charges a top state income tax of 13.3% with some legislators proposing raising that to 16.8%. Another legislative proposal urges a wealth tax on anyone who has a worldwide net worth of more than $30 million. Bahnsen said such talk is a “huge” incentive to the rich to consider restructuring their home addresses to places where they have second homes like Sun City, Idaho, or Park City, Utah.
The trend of being able to work remotely has caused more people to consider relocating, Batchelor said.
“I’ve seen more clients leave California in the past 12 months than in the past 10 years,” Batchelor said, saying they are moving to states with no or low income taxes, like Texas, Florida and Nevada.
“We’re seeing a little bit of that – but it’s not in droves,” said Joann Anderson, managing director, market executive, Bank of America Private Bank for Orange County. “Newport Beach residents are very wealthy. They have long histories in this community.”
One of Levin’s clients asked his children if he should move out of state because it would save the family hundreds of thousands of dollars in taxes annually.
“They said he should stay because they like the lifestyle,” Levin said, adding, “The weather is hard to beat.”
Leveraged Artwork
The rich are nowadays looking at their artwork for more than mere pleasure, according to Anderson.
“In the past, they never thought of their art collection as a place to raise liquidity,” she said.
Typically, the rich like to have “dry powder” so they can move quickly to acquire assets, she said.
“The rich are using their art as leverage to raise capital to buy a piece of property, to help a non-profit do some construction or to invest it back in the business.”
The bank uses auction houses like Christie’s or Sotheby’s to appraise the artwork.
“For us, art lending is something we do every day. It’s easy to underwrite.”
Favorite Restaurants
The advisers said popular restaurants nowadays among the rich include Newport Beach’s Gulfstream, Nobu, Louie’s by the Bay and the Balboa Bay Club. Other favorite destinations are Newport Coast’s Pelican Hill and Javier’s and downtown San Juan Capistrano.
“They want to get out where they can see a view, see friends,” Anderson said. “We’ve all been cooped up the past 12 months.”
Favorite Hobbies
Cars, private planes and remodeled homes have been increasing in popularity among the favorite hobbies of the rich in the past year.
A couple of the advisers cited Orange County’s golf clubs such as Irvine’s Shady Canyon Golf Club, Newport Beach’s Big Canyon Country Club and the Santa Ana Country Club as places that became more popular.
“They did a good job of adjusting,” Morgan said. “There was a feeling that it was a safe place to be during the pandemic.”
More than anything, the analysts say boating is more popular than ever.
“Boats have clearly seen a huge pickup in demand,” Levin said. “The common theme (among the rich) is they didn’t buy early enough. There’s no inventory in the local boat yards. They’re empty.”
Batchelor noted that Newport Beach slip rates that were previously at $50 to $60 a foot per month are easily topping $100.
“Anything that gets people outdoors is through the roof,” Batchelor said.
Favorite Getaways
Travel is mostly domestic because there are a lot of uncertainties about foreign destinations.
Maui, Sun City, Aspen, Jackson Hole and Park City are still popular, the advisers said.
“We’ve done significant lending for vacation homes,” Morgan said.
One hot spot seems to be all the rage.
“I don’t want to reveal it because it’s my favorite place—Big Sky Montana,” Batchelor said.
Three of the five most expensive private clubs in the country are in Big Sky, Batchelor said, pointing out that the Yellowstone Club’s smallest condo, 1,400-square foot, sells for $6 million.
“It’s Aspen 50 years ago or Park City 20 years ago.”
Favorite Charities
Charities in favor are those closest to the most affected communities, such as food banks like Second Harvest and socially connected organizations like Orangewood, OC Rescue Mission, Goodwill of Orange County, YMCA, United Way and the Boys and Girls Clubs.
Furthermore, the offspring of the wealthy are also setting up their own foundations, Anderson said.
“The next generation is really getting involved on the philanthropic side,” she said.
Party Time
The uber wealthy in Orange County are spending a little less time on their businesses and more on their families, the advisers said.
“A friend recently had a wedding that was an all-out affair,” Levin said. “It was an opportunity to bring together family and friends who hadn’t seen each other in years.
“While business is important, it’s not as important. They don’t say ‘I want more dividends or interest income.’ Now they’re talking about how they want to take care of the softer side, their moms or their sisters or someone less fortunate.”
