Wealth Management

Rich scorecard

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The World Wealth Report on the globe’s rich and other bellwether billionaires offers an insight into their new investment strategies. The good news is that passion investments such as boats and wine are still in, but property is on the nose. By JAMES THOM

By James Thomson

World wide wealth report

The World Wealth Report on the globe’s rich and other bellwether billionaires offers an insight into their new investment strategies. The good news is that passion investments such as boats and wine are still in, but property is on the nose.

This week’s World Wealth Report from consulting firm and financial services group Capgemini provides some fascinating insights into the global population of high net worth individuals (HNWI) – and not just because it reveals that there are now 10.1 million individuals on the planet with more than $US1 million in financial assets (that is, assets other than collectibles, consumables, consumer durables and the primary residence).

The report’s insights into the investment strategies and spending habits of the world’s HNWI are also required reading for anyone who follows the behaviour of highly successful business people.

Chasing after the rich is a bit like chasing down an exotic species of bird. Often you get to look at the feathers of one or two birds and sometimes even a small flock, but rarely do you get to a sense of the size and scope of the whole population. The World Wealth Report, while limited and a touch out of date (it focuses on calendar 2007) provides a profile of the world’s HNWI that cannot be matched by Forbes’ billionaire’s list or any country’s rich list.

The big-picture numbers from the report are impressive. Despite the sub-prime crisis and resultant global economic turmoil in the second half of 2007, the world’s HNWI did very well, with the total amount held by HNWIs increasing 9.4% to $US40.7 trillion. For the first time, the average amount held by each individual crashed through the $US4 million barrier.

Big deal, you might say – it’s not that impressive to have $US1 million these days. Consider then that the number of people in the group called ultra HNWIs – those with more than $US30 million in financial assets – has grown in population size by 8.8% and in accumulated wealth terms by a stunning 14.5%.

The biggest HNWI population gains were in the Middle East (up by 15.6%), Eastern Europe (up by 14.3%) and Latin America (12.2%). The BRIC nations – Brazil, Russia, India and China – are starting to dominate the list and posted in aggregate a 19.4% increase in HNWI population and a massive 21.5% gain in accumulated wealth.

India led the world in HNWI population growth, rocketing ahead 22.7% (after gaining 20.5% in 2006) thanks to the strong performance of domestic equity markets. China ranked second in HNWI population growth, jumping 20.3%, more than two-and-a-half times greater than its 2006 pace.

The report also examines the investment strategies of the HNWI population. Not surprisingly, the rich were quick to move into the safest asset classes, even before the sub-prime crisis took a decided turn for the worse in the early part of this year. The percentage of assets held in cash/deposits increased from 14% to 17% while the percentage held in fixed interest assets increased from 21% to 27%.

HNWIs also provide a good clue about what us ordinary punters should avoid; property. The proportion of HNWI assets held in property dropped sharply from 24% to 14%. Given the outlook for the global property sector and the tight credit conditions prevailing in most markets, it’s a fair bet that the cautious stance taken by many HNWIs will continue for the next 12 months or so.

The average portfolio

ASSET

% of PORTFOLIO

Equities

33

Fixed interest

27

Cash/deposits

17

Property

14

Alternative investments

9

As to where the HWNIs are parking their money, Europe and North America remain the safe havens, despite concerns about the economic outlook in both regions: 42% of the assets of HNWI are parked in North America (just down from 43% last year) and 25% of assets are in Europe (unchanged from last year). Latin America is a new area of interest for many HNWIs, with the proportion of assets held there increasing from 7% to 9%.

You will also be pleased to know that the turmoil on equity markets and worsening economic outlook hasn’t stopped the HNWI population spending money on what the Wealth Report calls “passion investments”, including luxury items, sporting teams, race horses, wine and travel. Luxury collectables (including automobiles, boats and jets) and art remain the most popular big-ticket items.

What the rich spend their money on

ITEM

% OF PASSION INVESTMENTS

Luxury collectables (cars, boats, jets, etc.)

16.2

Art collection

15.9

Jewellery, gems & watches

13.9

Luxury/experiential travel

13.5

Luxury consumables

11.7

Wellness

10.2

Other collectables (coins, wine, antiques, etc.)

8.2

Sports investments (sports teams, horses,etc.)

5.0

Miscellaneous

5.5

If you are one of the many Australian investors facing financial year investment losses for the first time in seven years, Capgemini and Merrill Lynch have some good news. They predict the total wealth held by HNWIs will hit $US59.1 trillion by 2012, which will represent an annual growth rate of 7.7% – good times must be just around the corner.

The secret to this strong growth rate, according to the Wealth Report, is diversification. “As HNWI portfolios continue to grow more diversified over the long term, spread across international boundaries and asset classes, their investments become increasingly mobile,” the report says. “Thus, as growth in one region or market slows, HNWIs can move freely, reallocating their funds to other areas, often more quickly than the troubled market itself can react and recover.”

It’s a concept that every investor – rich or otherwise – should take notice of.

 

Read more about the rich

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