A study by Merrill Lynch Global Wealth Management and Capgemini shows that the richest of the rich, or high net worth individuals (HNWIs) expanded in population and wealth in 2010 surpassing the 2007 pre-crisis levels in nearly every region.
The 15th annual World Wealth Report says that global HNWIs’ population and wealth growth reached more stable levels in 2010. The population of HNWIs increased to 8.3 percent and HNWI financial wealth grew 9.7 percent or equivalent to US$42.7 trillion. This is much higher than the 17.1 percent and 18.9 percent in 2009 respectively. The global population of the Ultra-HNWIs grew by 10.2 percent in 2010 and its wealth by 11.5 percent.
“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.”
The global HNWI population remained highly concentrated in the US, Japan and Germany, accounting for 53 percent of the world’s HNWIs. The US is still home to the single largest HNW segment in the world with 3.1 million HNWIs accounting for 28.6 percent of the global HNWI population.
“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.”
Asia Surpasses Europe for the First Time
On the other side of the globe, the Asia-Pacific region posted the strongest regional rate of HNWI population growth in 2010. While HNWI wealth had already overtaken Europe in 2009, Asia- Pacific has now surpassed Europe in terms of HNWI population. It expanded by 9.7 percent to 3.3 million, while Europe grew by only 6.3 percent to 3.1 million.
Asia-Pacific HNWIs’ wealth gained 12.1 percent to US$10.8 trillion which exceeded Europe’s HNWI wealth of US$10.2 trillion, where the wealth increase was 7.2 percent in 2010. The Asia-Pacific region is now the second largest for both HNWI wealth and population but second only to North America.
This was attributed primarily to the solid performance of equities, commodities markets and real-estate throughout 2010.
HNWIs in Asia-Pacific, excluding Japan, continued to pursue returns in real estate, which accounted for 31 percent of their portfolio at the end of 2010 up from 28 percent a year earlier and far above the 19 percent global average.
By the end of 2010, HNWIs held 33 percent of all their investments in equities. Allocations to cash/deposits dropped to 14 percent in 2010 from 17 percent in 2009 and the share held in fixed-income investments dipped to 29 percent from 31 percent. Among alternative investments, many HNWIs favored commodities. Commodity investments accounted for 22 percent of all alternative investments in 2010.
Investments in emerging markets also provided opportunities for HNWIs who are in search of profit. In the first 11 months, investors poured record amounts into emerging market stock and bond funds before selling to capture profits as the year ended and after the value of many emerging market investments topped pre-crisis highs.
“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.”
Looking forward, HNWIs are expected to increase their equity and commodities allocations even more in 2012 while reducing their allocations to real estate and cash/deposits. Regional preferences are less certain as the extent of emerging market opportunities will depend on whether those markets can push to new highs while economies are being weaned of government stimulus.
Merrill Lynch Global Wealth Management provides comprehensive wealth management and investment services for individuals and businesses globally while Capgemini provides clients with insights and capabilities that boost their freedom to achieve superior financial results.