14th Annual World Wealth Report

The world’s high net worth individuals (HNWIs)¹ regained ground despite weakness in the world economy, according to the 14th annual World Wealth Report, released by Merrill Lynch Global Wealth Management and Capgemini. The world’s population of HNWIs returned to 10 million in 2009 and HNWI financial wealth increased, posting a gain of 18.9 percent to $39 trillion. Ultra-HNWIs² increased their wealth by 21.5 percent in 2009. These figures indicate that emerging wealth recovery has nearly recouped 2008 losses, returning to levels last seen in 2007.

“The last few years have been significant for wealthy investors. While in 2008 global HNWI wealth showed an unprecedented decline, a year later we are already seeing distinct signs of recovery, and in some areas a complete return to 2007 levels of wealth and growth”

“The last few years have been significant for wealthy investors. While in 2008 global HNWI wealth showed an unprecedented decline, a year later we are already seeing distinct signs of recovery, and in some areas a complete return to 2007 levels of wealth and growth,” said Sallie Krawcheck, president, Global Wealth and Investment Management, Bank of America.

“The rebound has been, and will continue to be, driven by emerging markets – especially India and China, as well as Brazil,” said Bertrand Lavayssière, managing director, Global Financial Services, Capgemini. “In fact, Asia-Pacific was the only region in which both macroeconomic and market drivers of wealth expanded significantly in 2009.”

While the global HNWI recovery was generally stronger in developing nations, most of the world’s HNWI population and wealth remained highly concentrated in the U.S., Japan and Germany, which together accounted for 53.5 percent of the world’s HNWI population in 2009, down slightly from 54 percent in 2008. North America remains the single largest home to HNWIs, with its 3.1 million HNWIs accounting for 31 percent of the global HNWI population.

Asia-Pacific HNWIs, Hit Especially Hard in 2008, Led Recovery in 2009

After falling 14.2 percent in 2008 to 2.4 million, Asia-Pacific’s HNWI population rebounded in 2009 to reach 3 million, matching that of Europe’s HNWI population for the very first time. Asia-Pacific wealth also surged 30.9 percent to $9.7 trillion, more than erasing 2008 losses and surpassing the $9.5 trillion in wealth held by Europe’s HNWIs. This shift in rankings occurred because HNWI gains in Europe, while sizeable, were far less than those in Asia-Pacific, which saw continued robust growth in both economic and market drivers of wealth. Hong Kong and India led growth in Asia-Pacific, after experiencing massive declines in their HNWI bases and wealth in 2008.

Moving Forward, Asia-Pacific and BRIC Will Likely Be the Powerhouses of HNWI Growth

BRIC nations (Brazil, Russia, India and China) are expected to again be the drivers of HNWI growth for their respective regions in the coming years. In Asia-Pacific, China and India will continue to lead the way, with economic expansion and HNWI growth likely to keep outpacing more developed economies. Asia-Pacific HNWI growth is likely to be the fastest in the world as a result. In Latin America, Brazil is similarly expected to remain an engine of growth. Russia is expected to display strength due to its commodity-rich resource base.

HNWIs Warily Returned to Markets in 2009 in Cautious Pursuit of Returns

HNWI investors favored predictable returns and cash flow, as evidenced by the rise in HNWI allocations to fixed-income instruments, to 31 percent from 29 percent. Equity holdings also rose, to 29 percent from 25 percent, as the world’s stock markets recovered. Cash holdings declined slightly. HNWIs from Latin America and Japan remained the most conservative, with HWNIs in each region holding 52 percent of their aggregate portfolios in either cash/deposits or fixed-income, despite surging equities prices.

Investments in residential real estate regained some of its appeal in 2009 as HNWIs showed a preference for tangible assets and sought to capture some bargains as real estate prices slumped. Of all real estate assets, the share dedicated to residential real estate rose to 48 percent from 45 percent as prices recovered across much of the globe. Commercial real estate holdings, however, dipped slightly to 27 percent from 28 percent as the sector experienced falling rental incomes, weak demand and increased supply.

Geographical Diversification Was Evident in HNWI Asset Shifts in 2009

The geographic distribution of HNWI assets also shifted in 2009 as HNWIs generally sought higher returns and greater geographic diversification in their portfolios. Overall, HNWIs in all regions except Latin America increased the relative share of holdings in markets outside their home regions in 2009. This could be reflected by an increase in HNWI allocations to emerging markets as investments flowed to regions and markets expected to have the most growth in the coming years. This shift countered a widespread trend toward asset repatriation to home regions during the crisis.

By 2011, HNWIs are expected to further reduce investments in their home regions and look to those regions in which growth is expected to be more robust. While HNWIs from the mature economic regions of North America and Europe are expected to continue increasing their allocations to Asia-Pacific in search of higher returns, HNWIs in Europe are also likely to increase their North American holdings to inject stability into their portfolios.

“These asset allocation findings tell us that despite signs of recovery and growth, HNWIs’ confidence was shaken by the financial crisis and they are taking a more balanced approach to investing and risk-taking, preferring more reliable and consistent returns,” said Krawcheck. “To best serve the more cautious investor, wealth management firms need to clearly identify and factor in behavioral traits when providing specialized and independent advice, and for effective portfolio and risk management over the long term.”