Global Wealth Expanded In 2012; Offshore Assets Rose But Share Dipped

Tom Burroughes

3 June 2013

Total private financial wealth expanded by 7.8 per cent last year from the year before to reach a total of $135.5 trillion, outpacing the rises in 2011 or 2010, when global wealth grew by 3.6 per cent and 7.3 per cent, respectively, the Boston Consulting Group has reported. It also found that offshore wealth grew, but declined in relative terms.

Wealth increased in North America (7.8 per cent), Western Europe (5.2 per cent), and Japan (2.4 per cent), mainly owing to the sharp rebound in equity markets in most countries, particularly in the second half of the year. Meanwhile, new wealth creation fuelled stronger, double-digit growth in the new-world regions of Asia-Pacific ex-Japan (13.8 per cent), Eastern Europe (13.2 per cent), and Latin America (10.5 per cent), BCG said in its 13^th annual survey.

Wealth in the Middle East and Africa (MEA) saw near-double-digit growth (9.1 per cent). New-world regions will account for nearly 70 per cent of the growth in global private wealth over the next five years, it said.

The report also went on to pinpoint what it sees as challenges in the industry and how to overcome them. The study is one of a number of global surveys of wealth trends due out in the next few weeks, such as the RBC/Capgemini annual survey.

The total number of millionaire households reached 13.8 million globally in 2012, or 0.9 per cent of all households. The US had the largest number of millionaire households (5.9 million), followed by Japan (1.5 million) and China (1.3 million). China should surpass Japan in 2013, it continued.

The highest density of millionaires was in Qatar, where 143 out of every 1,000 households have private wealth of at least $1 million, followed by Switzerland (116), Kuwait (115), Hong Kong (94), and Singapore (82). The US had the largest number of billionaires in 2012, but the highest density of billionaire households was in Hong Kong (15.1 per million), followed by Switzerland (9.4 per million).

Offshore

Offshore wealth, defined as assets booked in a country where the investor has no legal residence or tax domicile, rose by 6.1 per cent in 2012 to $8.5 trillion. Despite this increase, stronger growth in onshore wealth led to a slight decline - to 6.3 per cent from 6.4 per cent, compared with 2011 - in offshore wealth’s share of global private wealth.

“While offshore wealth is projected to rise modestly over the next five years, reaching $11.2 trillion by the end of 2017, wealth is increasingly moving onshore due to the intense pressure that tax authorities are exerting on offshore centres,” BCG said.

“Faced with troublesome industry trends that will likely lead to lower growth and profitability over the next five years, wealth managers need to take action on numerous fronts if they hope to maintain the momentum they achieved in 2012,” the report, entitled, Maintaining Momentum in a Complex World: Global Wealth 2013, said.

“The global wealth management industry has become increasingly complex,” said Brent Beardsley, a co-author of the report and the global leader of BCG’s asset and wealth management segment. “With the mature economies of the ‘old world’ and the developing economies of the ‘new world’ moving at different speeds, wealth managers in different regions are grappling with tough sets of problems. Diverse strategies will be required to succeed on either side of the divide,” Beardsley said.

Benchmarking

BCG benchmarked the performance of more than 130 institutions - either pure private banks or the wealth management units of large universal banking groups - from Western Europe, Eastern Europe, Asia-Pacific, North America, Latin America, and the Middle East.

Globally, in 2012, wealth managers achieved 13 per cent growth in assets under management over the previous year. Wealth managers in the Asia-Pacific region accounted for the strongest growth (23 per cent), followed by those in Latin America (18 per cent). EU onshore and offshore institutions, as well as North American banks, achieved AuM growth of around 10 per cent. The growth was driven largely by the rebound in many equity markets during the second half of the year, but also by the generation of net new assets, it said.

Among key trends identified, were: the shift in wealth creation and profit pools toward developing economies, the decline of traditional value propositions, and the rise in costs and complexity brought on by regulation.

To respond, the report suggested the following actions: building a presence in high‐growth markets and with HNW client segments; offering segment‐specific value propositions and embracing client-centricity, and industrialising operations and striving for lean front-to-back business processes

“Regardless of their home market or principal region of activity, wealth managers globally still have much in common,” said Daniel Kessler, a co-author of the report and the global leader of the wealth management topic for BCG.

“All must find ways to gather new assets, generate new revenues, manage costs, maximise IT capability, comply with regulators, and find winning investment solutions that lead to deep and long-standing client relationships. The battle to maintain the momentum they have achieved, amid a very complex industry landscape, will continue to intensify,” Kessler added.