John Thiel Opalesque Industry Update - The world’s wealthiest people, collectively known as high net worth individuals (HNWIs) or those with a minimum extra of $1m in cash, have become richer and their number is now much bigger than ever before.
A joint study by Merrill Lynch Global Wealth Management and Capgemini Global Financial Services titled, 2011 World Wealth Report, claims the HNWIs population has increased 8.3% to 10.9 million. The report also finds that the financial wealth of HNWIs expanded by 9.7% to reach $42.7tln (compared with 17.1% and 18.9% respectively in 2009). But more significantly, the number of ultra-HNWIs grew by 10.2% in 2010 and their wealth as a group grew by 11.5%, across the globe.
Clearly, the haves are having it more and they have recouped much of their losses from the 2007 global financial crisis.
“The past few years have seen great fluctuations in HNWI wealth and population,” said John Thiel, Head of U.S. Wealth Management and the Private Banking & Investment Group, Merrill Lynch Global Wealth Management. “In 2010, we saw growth rates slow down from the higher double-digit levels of 2009 when many markets were quickly returning from significant crisis-related losses.”
Not surprisingly, the world’s millionaires are still concentrated among traditionally wealthy nations, especially in the U.S., Japan and Germany, which together accounted for 53% of the world’s HNWIs. The U.S. has retained its status as the home of the world’s largest population of wealthy individuals with 3.1 million, or at least 28.6% of the total global HNWI population.
But the trend is shifting towards a younger demographic as millionaires ages 45 and under, are expected to comprise majority of the world’s high-heeled. There is also a trend towards emerging markets and overtake developed countries in terms of the number of wealthy individuals.
“While over half of the global HNWI population still resides in the top 3 countries, the concentration of HNWIs is fragmenting very gradually over time,” said Jean Lassignardie, Global Head of Sales and Marketing, Capgemini Global Financial Services. “The concentration of HNWIs among these areas will continue to erode if the HNWI populations of emerging and developing markets continue to grow faster than those of developed markets.”
According to the survey, Asia-Pacific posted the strongest regional rate of HNWI population growth in 2010, among the top 3 markets, and has overtaken Europe in terms of HNWI population. The number of wealthy individuals in the Asia-Pacific region has risen by 9.7% to 3.3 million, while Europe grew 6.3% to 3.1 million. Millionaires in the Asia-Pacific region account to $10.8tln or an increase by 12.1% compared to the previous year and exceeding Europe’s HNWI wealth of $10.2tln where the wealth increase was 7.2% in 2010.
“Asia-Pacific is now the second largest region for both HNWI wealth and population, second only to North America,” the study added.
HNWIs in Asia-Pacific, excluding Japan, also continued to pursue returns in real estate, which accounted for 31% of their aggregate portfolio at the end of 2010, up from 28% a year earlier and far above the 19% global average.
India also entered the top 12 countries hosting the world’s wealthiest. The country is now ranked the world’s 12th largest country with HNWI population as of 2010.
It is not surprising that the rich are getting richer. Thiel said it is a state of mind among wealthy individuals to increase their wealth. “High-net-worth clients want more and are expecting more,” he said adding: “They want to know what you learned from the financial crisis and what new ideas you have. And they’re looking for more access to specialized advice and for unique investment ideas.”
A separate report by PricewaterhouseCooper (the firm’s bi-annual global private banking and wealth management survey), added that the world is now “entering an age when only those who can genuinely deliver transformative change on a cost-effective basis will lead the industry.”
At the end of 2010, the world’s top millionaires held 33% of all their investments in equities, up from 29% a year earlier. “Allocations to cash/deposits dropped to 14% in 2010 from 17% in 2009 and the share held in fixed-income investments dipped to 29% from 31%. Among alternative investments, many HNWIs favored commodities. Commodity investments accounted for 22% of all alternative investments in 2010, up from 16% in 2009,” the Merrill Lynch and Capgemini report said.
Looking forward, Thiel has advised wealth managers to make key changes in their business operations to stay competitive. Wealthy individuals must increase their allocations into equity and commodities up to next year, and at the same time, must be fully aware of the opportunities presented in emerging markets.
“Global capital markets and major asset classes performed well over the year on the back of rising investor risk appetite,” said Thiel. “The shift toward equities in 2010 by HNWI investors reflected the search for returns and the desire to recoup more crisis-related losses. We also saw HNWIs continue to favor specific asset classes, such as equities and commodities, based on market opportunity or long-standing preferences.”