In 2022, the value of global financial wealth fell for the first time in 15 years, falling by 4% to $255trn.
Inflationary pressures, rising interest rates, and poor equity market performance are all factors, all against a backdrop of geopolitical uncertainty resulting from the Ukraine conflict.
The value of personal cash and deposits rose by 6.2% in 2022, owing to a more risk-averse attitude towards investing.
Real assets, such as real estate and works of art, saw a 5.5% increase in value to reach $261trn.
Overall, that increased absolute global wealth to $516trn in 2022, up 1% from 2021.
These are some of the conclusions from the Boston Consulting Group’s (BCG) report, titled BCG Global Wealth Research 2023: Resetting the Course.
Michael Kahlich, a BCG managing director and partner, and co-author of the report said: “The first downturn in the global financial wealth market since the 2008 crisis came after a 10% rise in value in 2021, which was one of the sharpest in over a decade.’’
“We expect that the improving macroeconomic outlook and rebound in stock markets will drive a return to growth in financial wealth as early as 2023, and our five-year compound annual growth rate forecast to 2027 remains a healthy 5.3%. However, the recent headwinds in the market show how important it is for industry players to future proof now for consistent long-term growth.”
Residences and regions grow at differing rates
In 2022, the financial wealth of the Asia-Pacific region, the Middle East, Africa, and Latin America all increased while it decreased in North America and Europe.
Furthermore, as is typically the case in times of economic uncertainty, international wealth rose by 4.8% in 2022 to $12trn globally.
By the end of 2025, Hong Kong will surpass Switzerland as the world’s top booking centre, despite the fact that Switzerland continues to be a very desirable destination for wealth management and financial services.
With an average annual rise of 13% over the previous five years, it outperformed other large booking centres in terms of the growth of assets under managed.
Gulf States experiences development
Hong Kong, meanwhile, is up against tough competition from Singapore, which is also profiting from its rising reputation as a refuge with strong ties to the West and is seen as a gateway to the Asia-Pacific region.
Finally, the United Arab Emirates drew assets from many geographical areas, such as Eastern Europe and Asia Pacific.
This helped it to build its assets under management faster than any other booking center.
Over the following five years, it is anticipated that its financial wealth will increase at a 10% annual pace.
Taking action on global financial wealth
The research also demonstrates that the profitability of asset managers is under strain.
Pre-tax profit margins for asset managers worldwide declined by an average of 2.3 basis points in 2022.
The drops were most noticeable in Asia Pacific (down 5.5 basis points) and North America (down 3.1 basis points), whereas Western Europe (up 2.5 basis points) and Latin America (up 0.3 basis points) saw rises.
The improvement in turnover to average customer business volume (RoBCV) and higher interest rates are the main causes of the margin growth in Europe and Latin America.
“Wealth managers need to adopt fresh initiatives on both the revenue and cost sides to remain competitive,” said Ivana Zupa, a co-author of the report.
“Key actions on the revenue side include building a scalable growth engine in client acquisition, designing a distinctive private market offering, revising the product shelf in line with shifting interest rates, and leading a long-overdue change in how financial advice is offered, driven by generative AI technology.”
”In parallel, a bold approach is needed to reducing costs, including conducting an end-to-end process review, getting shoring decisions right, exploring third-party tech and operations solutions, and simplifying products and services via advice-like discretionary portfolio management.”