World's Millionaires Increase by 14%, Boston Consulting Says

Date: Friday, June 11, 2010
Author: Bloomberg

Singapore and Malaysia led a recovery of global wealth to pre-crisis levels as the number of millionaires grew by about 14 percent last year, the Boston Consulting Group said.

The number of millionaire households increased to 11.2 million, according to the annual study released yesterday by the Boston-based firm. In 2008, the number of millionaire households fell about 14 percent to 9.8 million.

Global wealth rose by 11.5 percent as assets under management increased to $111.5 trillion, approaching 2007’s record $111.6 trillion. Singapore had the highest proportion of millionaire households at 11.4 percent, followed by Hong Kong and Switzerland, after the city-state posted a 35 percent gain.

“We’re the Monaco of the East, minus the bikini girls on the yachts,” Song Seng-Wun, an economist at CIMB Research Pte in Singapore, said by telephone, commenting on the island’s growth. “Now we have Japanese set-menus for $750 alongside your $2 chicken-rice, which you didn’t used to see before.”

Asia’s economic growth and government policies are encouraging China and India’s rich, as well as those fleeing Europe’s problems, to settle in Singapore, Song said.

North America, defined as the U.S. and Canada, had the greatest gain in assets at $4.6 trillion to $35.1 trillion. The U.S. also had the most millionaire households at 4.72 million, the survey said, while Europe remained the wealthiest region, with $37.1 trillion.

Asia-Pacific

Wealth in the Asia-Pacific region, excluding Japan, is expected to rise at almost double the global rate, the study said. Global wealth will increase at an average annual rate of almost 6 percent from year-end 2009 through 2014, which is higher than the 4.8 percent annual growth rate from year-end 2004 through 2009.

Asia-Pacific will increase its share of global wealth from 15 percent last year to almost 20 percent in 2014, with China and India the engines of growth, according to the report. Together, the two countries will make up 75 percent, or almost $9 trillion, of the increase in assets managed in the region over the period.

“The model is about how the wealth jam is being spread, based on the underlying GDP,” said Roman Scott, managing director of Singapore-based Calamander Capital Pte, which advises private banks. “In Asia, it’s not a huge stock of old wealth, but rather, lots of newly created wealth from economic activity.”

Developing Economies

Scott, who led Boston Consulting Group’s wealth management practice in Asia from 2000 to 2006, said the study’s model is based on official national statistics and may have failed to capture the real growth in developing economies. Countries like Indonesia, for instance, likely have at least 25 percent more wealth than estimated, he said.

Current numbers may differ from those in last year’s report because of currency fluctuations and newer available data, said Peter Damisch, a BCG partner and a co-author of the report. The study looked at 62 countries representing more than 98 percent of global gross domestic product.

The recovery in wealth last year was a result of resurgent financial markets and increased savings, the report said. The Standard & Poor’s 500 Index rose 20 percent in 2009 and the U.S. savings rate averaged 4.2 percent compared with 2.6 percent a year earlier.

Global wealth dropped in 2008 for the first time since the survey’s 2001 inception as the credit crisis sent stock indexes tumbling and slashed the value of real-estate holdings, hedge- fund and private-equity investments. Last year’s survey had said total wealth wouldn’t return to pre-recession levels until 2013.

‘Surprised’

“Given the severity and magnitude of the crisis, I’m surprised at how fast global wealth has come back,” Bruce Holley, a senior partner in Boston Consulting’s New York office, said by telephone before the report was released.

Less than 1 percent of households globally were considered millionaires, which is defined as investable assets of more than $1 million, exclusive of real estate and property such as art. Wealth became more concentrated with millionaire households controlling 38 percent of the world’s assets compared with 36 percent a year earlier, the study said.

The amount of offshore wealth, defined as assets housed in a country other than the investor’s legal residence, increased to $7.4 trillion after declining to $6.8 trillion in 2008 as global regulators pressured countries such as Switzerland to cut down on bank secrecy. Switzerland remained the largest offshore center, with about 27 percent, or $2 trillion, of assets, the report said.

Offshore Wealth

The share of global wealth held offshore may fall from almost 7 percent in 2009 to just over 6 percent in 2014 because of regulatory and competitive pressures, the report forecast.

Revenue at 114 wealth management firms worldwide declined by an average of 7.3 percent as assets under management increased an average of 14.3 percent, according to the report. Fewer transactions, tougher price negotiations and a shift to lower-risk asset classes and investments that are liquid and simple accounted for the drop, the study said.

Investors feel frustrated and distrustful following the market events beginning in 2008, even as wealth has increased, Holley said.

“People still feel burned,” said Holley. “I think the numbers in the report suggest a much rosier experience than how people actually feel.”