|Summary: The number of wealthy people around the world is growing rapidly. Boston Consulting Group has found that private global wealth in 2013 rose 14.6%, to $US152 trillion. And where these super-rich are investing ultimately depends on their location.|
|Key take-out: Super-rich investors in the Middle East use tax havens to shelter their wealth, while those in Latin America look closer to home, mainly to the US. Many Europeans and Americans are also more locally focused.|
|Key beneficiaries: General investors. Category: Strategy.|
It’s the wealth report season, when various research organisations across the globe finish crunching the wealth data of 2013 and come out with their findings.
In its latest report The Midas Touch: Wealth preservation and the world’s high-net-worth investors, Cerulli Associates, a US group that specialises in worldwide asset management and distribution analytics, spotlights the offshoring of Middle Eastern wealth and the varying dynamics of the newly wealthy in Latin America.
In the Middle East, the vast majority of funds and financial products are delivered through international insurance companies, like AXA, MetLife, and Standard Life, not your local brokers. There are some 4,000 financial advisors, 90% of which are based in the United Arab Emirates, but a chunk of the high net worth segment is serviced through the 60 some-odd private banks with offices in Dubai. The unstable region provides little cover and foreign accounts help folks shelter their wealth, which explains why the actual business is usually conducted in their accounts held in Geneva, Jersey, and Singapore. Still, there’s a carriage trade going the other way, too, claims Cerulli, with foreign life insurance companies, banks, private banks, and asset managers moving into the region.
The wealthy in Latin America, meanwhile, behave radically different than their counterparts in the US or Europe. These folks typically have a net worth of $US15 million, and are much younger; only 7% of Latin Americans are over the age of 65 (compared with 23% of Japanese and 13.5% of Americans). By 2015, total privately held wealth is estimated to be $US8.3 trillion.
Unlike in the Middle East, local banks dominate, though there is a wide disparity of quality. Brazil’s banking infrastructure is well developed, and stringent financial controls make it hard for the wealthy to get their money out of the country. In contrast, Mexico is still in the early stages of financial services development, but close proximity to the US gives the nation’s wealthy another option. Argentinians and Venezuelans park a staggering 80% of their assets abroad, since political instability and spiralling cycles of inflation dilute wealth if kept at home.
Boston Consulting Group, “Global Wealth 2014: Riding A Wave Of Growth.”
The headline finding in Boston Consulting Group’s wealth report was that private global wealth in 2013 popped by 14.6%, to $US152 trillion. Languishing economies in Western Europe and Japan undershot that double-digit growth, at 5% and 1% respectively, while the fast-growing Asia-Pacific (ex-Japan) market exploded 31%. Over the next five years, BCG expects Asia will continue its ascendance. Global wealth will grow at 5.4% annually to a total just shy of $US200 trillion, reports BCG. Asia-Pacific will account for half of that growth and, for the first time, will overtake North America as the world’s wealthiest region. That’s on a headline basis, of course, not on a per-capita basis, where Asia still has a long way to go to catch up with the developed West.
Still, the rapidly growing region is defying even previous optimistic estimates. By Cerulli’s tally, there were 1,587 billionaires in the world in 2013, commanding a total net worth of $US6.5 trillion. The US tops the list with 492 billionaires, though it took nearly a century to reach current numbers, with John D. Rockefeller becoming the world’s first billionaire back in 1916. Meanwhile, in 2002, China had no billionaires; 10 years on, the Middle Kingdom ranks second in the world, with 152 billionaires.
BCG predicts that by 2018, the US will retain the top spot as the world’s wealthiest nation but that China, at number two, will continue to narrow the gap, growing 84% to $US40 trillion, while the US expands by just 17% to $US54 billion. Farther down the list, India should crack the top 10. BCG expects it to rank seventh, up from 15th this year, by growing 129%.
As a consequence, the wealth management industry saw global assets jump by 11% in 2013, driven by a rising equity market. That pushed revenue some 8% higher, stronger than the 5% and 7% increases reached in 2012 and 2011 respectively. Regulatory costs continue to plague the sector and helped push overall costs up 3.5%. Clients are also demanding that this stodgy industry get with the times and adopt mobile technology. Top on that list of demands is “research and market data,” “tailored investment recommendations,” and “portfolio analysis and simulation,” for smartphones and tablets, all of which are noted as differentiators for early actors in the space.
WealthInsight: “Germany’s Millionaires: Eastern prosperity on the horizon.”
As Europe as a whole continues to report anaemic economic growth, the number of German millionaires continues to swell. From 2009 to 2013, the total number of millionaires increased 7.6%, to nearly 1.4 million people, while the number of multimillionaires, folks with $US30 million in investable assets, ballooned to 11,901, up 27%.
In keeping with their steely reputations in the field of banking, a hefty 35.5% of Deutschland’s millionaires come from the financial services sector, followed by 13.4% in manufacturing. That partially explains why 33% of these folks are located in the financial services centre of Frankfurt, followed remotely by Dusseldorf, at 10.7%. The capital Berlin in Eastern Germany, by comparison, has only 1.7% of the high net worth population.
WealthInsight believes assets held by German millionaires will increase by 25%, to $US5.6 trillion, over the next five years. Meanwhile, the number of millionaires will grow an additional 11%. But where are Germany’s richest parking their assets? Germans are a conservative lot and invest 65% of their wealth at home, where their steadfast economy seems to weather all storms.
In 2013, a touch over half of their foreign assets, 52.2%, were held in broader Europe. German millionaires, suggests WealthInsight analyst Tom Carlisle, will cut their exposure to other unstable European economies, as they continue to hunker down in the motherland and shun the broader European economy. By 2018, he predicts, European assets will fall by three percentage points, most of which will flow back into Germany.
Bad news, perhaps, for broader Europe but, as the title of the report alludes to, good news for Germany’s underdeveloped East, which folks left in droves after the fall of the Berlin Wall. It could take 20 years for this revitalisation to create balance between the East and the West, WealthInsight notes, but change is afoot. “Companies and the young have started moving back to East Germany in small numbers,” says Carlisle.
This article was first published in Barron’s and is reproduced with permission.