The ranks of the world’s millionaires swelled by around 900,000 people in 2010 to 10.9m with their wealth hitting more than $42trn, surpassing 2007 pre-crisis levels as they turned increasingly to equities and commodities to recoup crisis-related losses, research by Merrill Lynch Global Wealth Management and Capgemini reveals.
While North America remained home to the biggest population of high net worth individuals (HNWIs) with 3.4m people, Asia-Pacific was next with a population of 3.3m.
Asia outpaced Europe (3.1m), to become the second-biggest region for HNWIs worldwide, according to the Merrill Lynch Global Wealth Management and Capgemini 15th annual World Wealth Report (see below).
HNWIs worldwide grew 8.3% to 10.9m
The report, which covers 71 countries, showed that the number of HNWIs worldwide grew by 8.3% to 10.9m people in 2010. Their combined financial wealth rose by 9.7% to $42.7trn – $2trn more than their combined wealth in 2007 before the economic and financial crisis.
The rate of growth in total financial wealth in 2010 was more modest than in 2009 when there was an 18.9% jump in wealth thanks to a sharp rebound from the hefty crisis-related losses of 2008.
The global HNWI population remained highly concentrated in the US, Japan and Germany, which together accounted for 53% of the world’s HNWIs.
The US was still home to the single largest HNW population in the world, with its 3.1m HNWIs accounting for almost 29% of the global HNWI population.
Growth in the number of HNWIs – defined as individuals with at least $1m to invest in financial assets in addition to their main home, collectors’ pieces and many everyday items – was rapid in many parts of Asia, highlighting the growing prominence of millionaires in emerging markets like China, India and Indonesia.
The global population of ultra-HNWIs – those with at least $30m of assets to invest – grew by 10.2% in 2010 and its wealth by 11.5%.
Asia-Pacific overtakes Europe, India enters Top 12
While Asia-Pacific had already overtaken Europe in 2009 in terms of HNWI wealth, Asia-Pacific’s HNWI population rose 9.7% to 3.3m in 2010, while Europe’s grew 6.3 % to 3.1m (see chart).
Asia-Pacific HNWIs’ wealth gained 12.1% to $10.8trn, exceeding Europe’s HNWI wealth of $10.2trn, where the wealth increase was 7.2% in 2010.
Growth was robust in several Asian countries. The HNWI population climbed by 33% in Hong Kong and Vietnam and by more than 20% in Sri Lanka, Indonesia, Singapore and India.
Indiabecame the country with the world’s twelfth largest HNWI population in 2010, replacing Spain.
HNWIs clearly assumed calculate risks in search of better returns in 2010. Equities and commodities markets, as well as real-estate particularly in Asia-Pacific, performed solidly throughout 2010.
HNWIs continued to favour specific asset classes, such as equities and commodities, based on market opportunity or long-standing preferences.
The growing prominence of emerging markets was also illustrated by the opportunities they provided for wealthy investors in search of profits.
Equity and commodities allocations to climb in 2012
In the first 11 months, investors invested record amounts in 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.
At the end of 2010, HNWIs 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 favoured commodities. Commodity investments accounted for 22% of all alternative investments in 2010, up from 16% in 2009.
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.
Looking ahead, HNWIs are expected to increase their equity and commodities allocations even more in 2012 while reducing their allocations to real estate and cash/deposits.
Passion for Luxury
The economic rebound and growing wealth in emerging economies also helped to spur a revival in investments of passion, from luxury cars to gold coins. Demand from Chinese buyers in particular was widely reported for all sorts of investments.
Luxury collectibles, such as cars, boats and jets, remained the main investment of passion in 2010, accounting for 29% of investments of passion globally.
Prestige car makers reported strong demand in emerging markets, including Asia-Pacific, Russia and the Middle East and increased interest from India, Brazil and Russia. Mercedes-Benz, for example, said its worldwide sales rose 15% in 2010, but sales in China, including Hong Kong, jumped 112%.
Art, most likely to be seen as a form of financial investment, accounted for 22% of passion investments.
Chinese keen bidders and buyers of art
Newly wealthy Chinese buyers were widely reported to be keen bidders and buyers at galleries and auction houses, especially to acquire the fast-diminishing supply of works from native artists.
Jewellery, gems and watches also accounted for 22% of investments of passion with diamonds fetching record prices at international auctions in 2010.
Demand at the highest end of the market was largely from Russia and the Middle East in 2010, but demand from Chinese and other Asia-Pacific investors also grew fast.
Other collectibles, such as wine, antiques and coins, accounted for 15% of investments of passion. Rising gold prices helped to buoy demand for rare coins in 2010.
Finally, sports investments accounted for 8% of HNWIs’ investments of passion.
While investments of passion are clearly motivated by more than financial considerations, many investments of passion are solid financial investments which play a role in an investment portfolio, especially when investors are seeking investments with a low level of correlation to global financial markets.
Complex Post-Crisis Needs
In the wake of the global financial and economic crisis, the demands and concerns of HNWIs have grown more complex.
Many high net worth individual clients have rethought their investment and life goals and are heavily weighing the risks they are willing to take to achieve those goals.
Wealth management firms and advisers will need to bring the full force of their capabilities to bear to deliver an integrated response to the complex post-crisis needs of high net worth individuals.
Enterprise Value – the ability to leverage or combine different cross-enterprise capabilities in other parts of a business such as the corporate, private or investment bank – is critical as HNWIs expect their asset managers and advisers to create more sustained and broad value than before the crisis, according to the Merrill Lynch Global Wealth Management and Capgemini 2011 World Wealth Report.
The crisis has had a lasting effect on the investor psyche, reflected in the still relatively cautious asset allocations of HNWIs.
42% of HNWIs rate capital preservation as “extremely important”
Although HNWIs took on more calculated risk in search of better returns, at the end of 2010, HNWIs globally still held a significant amount of their assets in more conservative instruments such as fixed-income, cash and equivalents.
After seeing significant market fluctuations, 42% of HNWIs said capital preservation was “extremely important” and 46% said it was “important.”
It is clear from the findings of the report that while HNWIs remain cautious they have also regained trust in wealth management firms and advisers.
In 2010, as financial markets and economies rebounded across the globe, a significant majority of HNW clients reported that they have trust and confidence in their wealth management advisers and firms.
This endorsement stands in stark contrast to 2008, when nearly half of HNW clients had lost trust in their advisers and firms.
It is also clear that in the post-crisis environment HNWIs need a higher degree of responsiveness and flexibility than in the past. This will require an eye for longer-term return-on-investment (ROI) measures. Reassurance about continuity will be critical.
Adam Horowitz, Head of UK, Ireland and Israel at Merrill Lynch Wealth Management.