The arrival of the summer brought with it the regular global wealth market sizing reports. This year, Merrill Lynch and Capgemini’s World Wealth Report 2011 indicates that the wealth of high net worth individuals (HNWs) worldwide (those having investable assets of $1m or more) rose to $42,700bn, exceeding the pre-2007 crisis peak.
If we think back to where the world was just a couple of years ago, this figure is not only surprising, but also a welcome reminder of the potential for future growth for the wealth management industry. But, it does also beg the question, where is all this growth coming from?
The report implores us to look to Asia for our answer. Asia-Pacific HNW wealth rose 12.1 per cent to $10,800bn last year, resulting in the region replacing Europe as having the second largest population of HNW individuals behind North America.
Fundamentally, the increase in Asia-Pacific wealth is credited to the strong economic performance of the region, with GDP growing at 8.3 per cent. This, says the report, is the “engine” which is driving wealth creation to new heights in the region. In the Asia-Pacific region, HNW wealth growth was four percentage points above the region’s GDP growth.
RISING NUMBERS
However, this same argument does not hold true for the other regions. In North America and Europe, where the engine has all but stalled, wealth creation remains strong. In fact, in North America and Europe HNW wealth grew at more than double the GDP growth rate of these regions.
The continued strong performance of world equity markets last year is put forward as a secondary factor in global wealth growth. With market capitalisation globally rising 18 per cent in 2010, this is no doubt a contributing factor, but it rather assumes that a substantial proportion of HNWs worldwide have significant equity allocations to benefit from this trend.
Certainly, equity allocations are on the rise in many places as investors chase returns, but coming out of the crisis, cash was king. It is unlikely that HNWs bought in en masse at the bottom of the market to capture the full impact of the recent rally.
This still leaves us with the question why HNW wealth is recovering apace. It is easy to forget that wealth creation is an activity that happens largely in isolation from the financial world, or even political and economic trends. This crisis in particular has highlighted that when the public sector is shrunk down to size, entrepreneurship is often encouraged and when bank credit dries up businesses look for different sources of capital.
The report finds that the number of ultra high net worth individuals (UHNW) –those with $30m or more – outstripped HNW growth. This seems plausible. UHNW individuals are a source of liquidity – so in times where credit is constrained, many growing businesses approach them directly for funds. As a result, UHNWs benefit from above market returns from unlisted equity, thus their numbers and their wealth swells disproportionately.
Another factor driving HNW wealth to an all-time high is the surge in entrepreneurialism. This phenomenon is evidenced in the report by the bulge in HNWs under the age of 45 and the number of women entering the HNW ranks.
So, while once again the world of wealth management dwells on the inexorable rise of Asia, there are plenty of other positive messages to take from the latest market sizing data. Firstly, there are more HNWs around the world than ever before. And, more than that, private wealth is growing at a fast clip.
It behoves the wealth industry to absorb these trends and tap into this new market potential – not just in Asia, but to look again at the opportunities that are resurging around the world.
Catherine Tillotson is managing partner at wealth management think-tank Scorpio Partnership
