World wealth climbs 7.7% as HNWIs continue shift into alternatives

The total global wealth of high net worth individuals (HNWIs) has climbed 7.7% to USD 28.8 trillion, according to a new survey by Capgemini and Merrill Lynch.


There were an estimated 7.7 million high net worth individuals in the world at the end of 2003, up 7.5% or a net 500,000 people compared with the previous year, according to the 2004 World Wealth Report. HNWIs are defined as people with financial assets of at least USD 1million, excluding home real estate.


The trend for continued increases in worldwide wealth should stay intact with the World Wealth Report predicting HNWI financial wealth to grow by 7% per annum and to exceed USD 40 trillion by 2008.


The ranks of HNWIs in the United States stood at 2,270,000 at the end of 2003, up 14% or a net 272,000 compared with the previous year. China, at 12%, and India, at 22%, also scored solid gains in HNWIs last year, while Europe, the Middle East and Latin America posted more modest increases.


"As in previous years, high net worth individuals were quick to respond to global trends affecting their ability to preserve and grow wealth. They benefited from a strong stock market rally and solid, global economic growth. In particular, wealthy investors in the U.S., China and India were able to capitalize on these trends despite a great deal of geopolitical uncertainty," said James Gorman, president of Merrill Lynch's Global Private Client group.


Europe, Latin America and the Middle East lagged


While the ranks of the wealthy swelled in Asia and North America, Europe showed a more modest increase, with the number of HNWIs rising 2.4% to 2.6 million. Wealth in the region climbed to USD 8.7 trillion.


Europe as a whole continues to sustain lower average HNWI wealth than North America, primarily due to restrictive income-tax policies which impede the ability to accumulate personal wealth. Spain, Russia and the Czech Republic were notable exceptions where the wealthy investor count increased more rapidly.


Latin America fared better in 2003 than it did the previous year, but growth was relatively low both in HNWI numbers and wealth despite the impressive gains in equity markets across the region. Latin American HNWIs, whose ranks edged up 1.3%, continued to have the highest average wealth per HNWI of any major region.


The number of HNWIs in the Middle East rose 2.4% last year.


Shift into Equities, Alternative Investments


"HNWIs benefited in 2003 both from substantial gains in existing equity positions as well as additional equity investment as external conditions stabilized," said Petrina Dolby, a vice president in Capgemini's Securities Industry Consulting Practice.


"Wealth advisors have been utilizing more sophisticated research and analysis tools to stay ahead of the market and as a result, HNWIs were among the first investors to begin shifting their focus from low-yielding fixed-income securities back into equities, specialiced products and alternative investments," she said.


"Amid a stable investment climate and low interest rates during the year, wealthy investors in many regions of the world increased their allocations to both hedge funds and structured products, which delivered healthy returns and provided balance to their portfolios," she said.


Additionally, real estate, though not generally considered a liquid asset, proved appealing to HNWIs for the second year in a row, Ms. Dolby noted.


"HNWIs seem to have gotten it right last year. They increased their exposure to equities, which outperformed other asset classes," said Bob Doll, President and Chief Investment Officer of Merrill Lynch Investment Managers.


In addition to weighing the right equity exposure, Mr. Doll said other investor considerations should be investing globally, rethinking the make-up of bond portfolios, investment in commodities and non-correlated investments, and putting excess cash back to work.


Wealthy Investors Showing Increasingly Sophisticated Behaviour


Wealthy investors are increasingly acting like institutional investors and have come to expect portfolio risk management, dynamic asset allocation and objective investment advice.


"A growing number of HNWIs are successfully mirroring the behavior of institutional investors. This can be seen in their following a structured process, looking for integrated solutions rather than buying isolated products, and taking the emotion out of investing," said Alvi Abuaf, vice president at Capgemini and leader of its North American Securities Industry Consulting Practice.


"HNWIs' primary financial objectives have evolved between 2002 and 2003: Today we see them moving away from an emphasis on preservation of capital and toward an increased focus on accumulation and distribution of wealth," he said.


And for many wealthy investors, wealth management has become multi-generational, which has created strong demand for services centered on tax, estate and philanthropy planning services.


"Many ultra-wealthy families are creating '100-year plans,' in which family members are treated as business divisions and emphasis is put on corporate-inspired guidelines such as family mission statements, governance structures and guidelines for communication. As a result, many wealth advisors have evolved into the role of CFO to HNWI's family portfolios and are now more frequently utilizing new products and technologies to meet more sophisticated investment strategies on behalf of clients," Mr. Abuaf said.


For a complete pdf version ot the World Wealth Report, visit http://www.capgemini.com/finance/


 

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