Region’s richest leading global wealth recovery

In 2009, the Asia Pacific region drove global wealth recovery, both in terms of the number of high net worth individuals (HNWs) and assets they control, according to the latest annual world wealth report released by Merrill Lynch Global Wealth Management and Capgemini.

The global number of HNWs – the individuals with investable assets of over $1m, excluding their primary residence – increased by 17.1 per cent and their wealth rose by 18.9 per cent to $39,000bn. This was driven by growth in global market capitalisation and strong gains in commodities and hedge funds.

In Asia Pacific, the only region in the world where both macroeconomic and market drivers of wealth expanded significantly last year, HNWs rebounded in 2009 to reach 3m, up from 2.4m in 2008, catching up with Europe for the very first time. Equally, Asia Pacific HNW wealth surged 30.9 per cent to $9,700bn, more than erasing 2008’s losses and surpassing the $9,500bn in wealth held by Europe’s HNWs.

Outsized gains

Hong Kong and India led the growth in the region, after experiencing massive declines in their HNW bases and wealth in 2008. Both countries, and especially Hong Kong have a high market cap to nominal GDP ratio, which make them particularly vulnerable to losses in wealth when the market declines as it did in 2008, but also produces outsized gains in wealth when stock prices rise.

China remained the world’s fourth largest HNW base with 477,000 HNWs, up 31 per cent. Stock market capitalisation soared more than 100 per cent in 2009, as the economy grew by 8.7 per cent.

While the global HNW recovery was generally stronger in emerging and developing nations than mature ones – and Brazil, Russia, India and China (Bric) are expected to continue to be “the powerhouse” of high net worth growth and the drivers of their respective regions – most of the world’s rich remain highly concentrated in three countries. The United States, Japan and Germany together accounted for 53.5 per cent of the total 10m HNW population, down only slightly from 54 per cent in 2008.

Although total world wealth is not far off the $40,700bn seen at the end of 2007, according to the study, private banks manage only $16,500bn in total assets, estimates the latest Global Private Banking Benchmark by London-based consulting firm Scorpio Partnership.

Even if Scorpio’s global primary research sets at $26,000bn, around two-thirds of the total, the realistic amount of bankable assets likely to be available to the industry, this leaves approximately $10,000bn of HNW assets that could be advised by the banks and are not currently in the sector.

Capturing this wealth is key to the recovery of the private banking industry, which has seen a median 34 per cent decline in the Key Performance Indicator of profitability from the previous year’s level.

The annual ranking of the top 10 global wealth managers is a relative static picture from last year, in terms of positioning, although assets grew significantly (see chart). The top 10 private banks now collectively manage $8,733bn in HNW assets, which represent 64 per cent of the total industry fee-based managed assets. A new entrant is Royal Bank of Canada, following an improved level of transparency in its financial reporting for global private banking, while Swiss private bank Pictet & Cie returns to the top 10 after two years. The market is highly concentrated with the top five institutions commanding more than 41 per cent of the global managed assets.