Wealthy investors find opportunities in stock market sell-offs

A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.

Wealthy investors and family offices shied away from stocks leading up to market swings this week, but many saw the drop in prices as an opportunity for tax savings and estate planning, according to wealth advisors.

Private banks and wealth managers say their clients have been reducing their stock holdings for over a year as part of a broader shift from public to private markets in light of recent concerns about an overheated tech sector.

According to a UBS family office survey, family offices have 35% of their portfolios in private equity — the largest of any asset class — compared with just 28% in equities. A Deloitte survey found that family office holdings of equities fell from 34% to 25% from 2021 to 2023, while their private equity jumped from 22% in 2021 to 30% in 2023.

When stocks tumbled Monday, with the S&P 500 and Nasdaq down 3%, wealthy investors neither panicked nor jumped in to buy, according to several advisors. They did have a lot of questions.

“The common question from clients was ‘What’s going on?'” said Sean Apgar, partner and co-head of portfolio and wealth advisory at BBR Partners, which advises ultra-wealthy clients. “It was more out of curiosity; there was no real motive for action.”

Apgar said the clients BBR advises — most worth hundreds of millions or billions — don’t react to short-term market events given their long investing horizons. Yet they did want to be educated about the market moves, the Japanese carry trade, the growing recession fears and rate cut odds. For his clients, their investment plan is still their investment plan.  

“The best thing clients can do right now is sit back and feel good about the investment plan we put in place with them long ago, with expected volatility and corrections along the way,” Apgar said.

The drop in prices last Friday and Monday also offered a chance for wealthy investors to take advantage of tax benefits and gift strategies.

William Sinclair, head of the financial institutions group and the U.S. family office practice at J.P. Morgan Private Bank, said a growing number of clients have so-called “separately managed accounts,” discreet accounts designed to hold a specific group of assets or stocks. With separate accounts, clients can more easily sell stocks that have declined in value and realize losses they can use to offset capital gains from their winning stocks, known as “tax-loss harvesting.”

With some Big Tech stocks down 15% or more over the past month, wealthy investors are selling at a loss, reaping the tax benefits and buying the stock back at a later date to retain their…