Emerging markets drive increase in high net worth investors: study

Date: Wednesday, June 23, 2010
Author: Investment Executive

Despite weakness in the global economy, the world’s population of high net worth investors returned to the 10 million mark in 2009, according to the latest annual report on this segment by Merrill Lynch Global Wealth Management and Capgemini.

The firms report that the increase in the world’s population of wealthy investors was driven by emerging markets, although the U.S., Japan and Germany, still account for 53.5% of the world’s HNWI population in 2009 (HNWIs are defined as those having investable assets of US$1 million or more, excluding primary residence, collectibles, consumables, and consumer durables), down slightly from 54% in 2008.

North America maintains a 31% share of the coveted investor population, 3.1 million HNWIs, which is still the world’s largest (Canada’s population rose to 251,000 from 213,000 during the year). The Asia-Pacific region isn’t far behind at 3 million, matching Europe, and up from 2.4 million in 2008.

Not only did the wealthy investor population rebound, but HNWI financial wealth increased by 18.9% in the year to $39 trillion. So-called ultra-HNWIs (defined as those having investable assets of US$30 million or more) increased their wealth by 21.5%. The firms say these figures indicate that these investors have nearly recouped their 2008 losses, returning to levels last seen in 2007. In the Asia-Pacific region, wealth surged 30.9% to $9.7 trillion, more than erasing 2008 losses and surpassing the $9.5 trillion in wealth held by Europe’s HNWIs.

“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,” added 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.”

Looking at asset allocation, the firms report that HNWI allocations to fixed-income instruments rose to 31% from 29%. Equity holdings also rose to 29% from 25%, as the world’s stock markets recovered. Whereas, cash holdings declined slightly.

The geographic distribution of HNWI assets also shifted. Overall, investors in all regions except Latin America increased their relative share of holdings in markets outside their home regions in 2009, they noted, which countered a widespread trend toward asset repatriation to home regions during the crisis.

Wealthy investors are expected to further reduce investments in their home regions in the year ahead, with investors from the mature economic regions of North America and Europe expected to continue increasing their allocations to Asia-Pacific in search of higher returns, and HNWIs in Europe predicted 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.”