Reports Point to Further Wealth Consolidation

Emma Rees

2 July 2007

In recent weeks there has been a flurry of reports on wealth management, all charting the inexorable rise of the global super rich. Here, WealthBriefing compares the findings of two, the established Merrill Lynch, Capgemini World Wealth Report 2007 released last week and a relative newcomer, Barclays Wealth Insights series in co-operation with the Economist Intelligence Unit. According to the Merrill Lynch and Capgemini report, the number of the world’s high net worth individuals (HNWs, financial assets of $1 million plus) now stands at 9.5 million having risen 8.3 per cent during 2006. Their assets rose at the fastest rate for seven years (by 11.4 per cent to $37.2 trillion), driven primarily by accelerating GDP and stock market gains across the world. Whereas the Merrill Lynch and Cap Gemini Report has the benefit of over a decade’s retrospective comparative data, Barclays Wealth Insights series looks forward. It predicts that the estimated 6.34 million HNWs in G7 nations with financial wealth in excess of $1 million will more than double over the next decade to 16.3 million by 2016 with Canada, Germany, Japan and the UK all experiencing more than a three-fold increase. The Merrill Lynch’s World Wealth Report states that during 2006 the number of HNWs in the UK surged faster than the average across Germany, France and Europe, making the UK home to 16.7 per cent of Europe’s HNWs. Nick Tucker, Market Leader of UK & Ireland, Merrill Lynch Global Private Client said: “The number of rich individuals in the UK increased at a faster rate in 2006 - 8.1 per cent (to 484,580) compared to 7.3 per cent in 2005 (to 448,070). Last year the number of HNWs in Europe increased faster than in 2005, as did their wealth which rose 7.8 per cent to $10 trillion, compared with an increase of 4.9 per cent in 2005. On both counts this is the strongest growth since 2000.” According to Barclays Wealth, this trend is set to continue and the UK and Germany will race to become the first European G7 country to play host to a million “dollar millionaire” households over the next decade, with Germany scoring a narrow victory, achieving the landmark in 2016. It predicts that the UK will reach the one million mark in 2017. Looking globally, Barclays Wealth Insights report downplays the “BRIC effect”, calling it “overplayed” as a breeding ground for wealth. Gerard Aquilina, head of International Private Banking, believes that there are opportunities across the world, but in order to be successful internationally, firms must address the differing priorities of their changing client base. “The bigger the institution, the more international it needs to be. Our most recent research confirms that the influence and affluence of women is growing around the world. Some 47 per cent of HNW individuals in Europe are female, this percentage is increasing and women are also getting wealthier faster than men. Wealth management firms need to be aware of and attentive to the different thought processes, attitudes to risk, lifestyle and succession planning methods that differ widely both due to nationality and gender,” he told WealthBriefing. Merrill Lynch’s report points to the BRIC nations playing increasingly important roles in the global economy. According to the report, one the largest growths of HNW populations compared to 2005 occurred in India, where numbers rose 20.5 per cent. This growth was second only to Singapore which saw a 21.2 per cent growth. China (7.8 per cent) and Russia (15.5 per cent) were among the top ten countries with the fastest growing HNW populations and Brazil also showed continued strength. Both reports indicate that as the ranks of the wealthy swell, they are also getting richer. The World Wealth Report describes this as a “consolidation of wealth”, where the assets of the world’s wealthiest individuals in 2006 outpaced the growth of the overall HNW population by 3.1 percentage points, led by Latin America, Africa and Asia Pacific. A notable exception to this was in the Middle East, which saw a dispersion of wealth. The ultra wealthy are also seen to be getting richer at a faster rate than their merely rich counterparts. Ultra High Net Worth individuals (financial assets $30 million plus), grew 11.3 per cent to nearly 95,000, but the total wealth of this elite group grew by an impressive 16.8 per cent to $13.1 trillion, showing that wealth is becoming more concentrated amongst the ultra rich. This trend is echoed by what Barclays Wealth terms “super high net worth” individuals with aggregate wealth (including property) of $3 million plus. Between 2006 and 2016, in each of the G7 countries, its report forecasts that the numbers of super HNWs will rise at a faster rate than their HNW or affluent counterparts, led by Japan (298 per cent), the UK (276 per cent) and Canada (255 per cent). Property is a further focus of both reports and Merrill Lynch finds that during 2006 the appeal of property has strengthened and HNWs have shifted more money into real estate, at times releasing money from alternative investments to fund this. Barclays Wealth Insights also finds that property is the investment vehicle of choice for the wealthy. Its UK research found that nearly two-thirds (63 per cent) of HNW individuals had at least one UK investment property, seven per cent had more than three and 31 per cent had an overseas property in their investment portfolio: “You don’t have to go far to see escalating property prices in London, but they are also increasing in Moscow, Dubai, New York and Mumbai,” said Mr Aquilina. “And it’s not just second homes. There is an increased interest in commercial property and REITS.” This year, Merrill Lynch and Cap Gemini’s report investigates the wealthy’s “investments of passion” and finds that luxury collectibles such as yachts, private jets and vintage cars make up the greatest proportion of outlay in this area at 26 per cent, followed by art (20 per cent) and jewellery (18 per cent). Barclays Wealth reports that wealthy men and women spend the majority of their leisure time and disposable income on holidays and home improvements, but where women tend to favour clothes and jewellery, men are more inclined to spend on furniture and gadgets: “Where luxury items were once viewed only as toys, they are now serious investments. As art gains a broader audience across the planet, its liquidity increases and it becomes more viable as an investment,” says Mr Aquilina. “Gender also plays a part. Our research shows that women have a higher proclivity toward real estate as an investment and also jewellery, not for show, but as an investment. History is a great driver of people’s behaviour and particularly in less developed markets which have experienced periods of high inflation, fixed income and assets such as jewellery and property are often held as a hedge against it.” Whereas Barclays Wealth predicts that the rise in global wealth will continue apace and the number of G7 households with financial assets in excess of $1m will increase by 158 per cent across the next decade, Merrill Lynch and Cap Gemini find that in 2007 growth will be tempered by mature economies growing more moderately. By 2006, global HNW financial wealth is forecast to grow to $51.5 trillion, an annual rate of 6.8 per cent.