Wealth gatherers moving Eastwards

Despite slower growth rates compared to 2006, the rich of this world and the total wealth they control continued to increase at healthy pace, according to the 12th annual world wealth report released by Merrill Lynch and Capgemini. In 2007 the high net worth (HNW) individuals, those with investable wealth of over $1m, excluding their primary residence and collectables, increased 6 per cent (versus 8.3 per cent in 2006) to 10m. Total world wealth swelled to $40,700bn (E26,100bn), growing by 9.4 per cent (versus 11.4 per cent last year). But high level numbers only tell part of the story. While there was consistent growth rate across the different geographic areas in the first part of last year, the credit crunch deepened the divergence in wealth expansion between mature and emerging economies. Europe and North America lag behind with annual growth rates in the number of HNWs of 3.7 per cent and 4.2 per cent respectively. In the Middle East (15.6 per cent), Eastern Europe (14.3 per cent) and Latin America (12.2 per cent) the number of wealthy people grew much faster. Countries such as China, India or Brazil driven by strong market capitalisation, solid GDP growth, and high savings rates, witnessed the highest growth (22.7, 20.3 and 19.1 per cent respectively). The strong advance of emerging economies, where dichotomy between the very wealth and the poorest is typically higher, exasperated the global trend of wealth consolidation, said Nick Tucker, market leader for UK & Ireland, Global Wealth Management at Merrill. In fact, wealth of the rich grew by 9.4 per cent, faster than the number of HNWIs, leading to higher wealth concentration. This trend is even more evident in emerging regions. The geographical relative redistribution of the wealth is set to make private banks rethink their expansion strategies going forward. Firms wanting to make the most of the growth opportunities presented by new markets face a risk, said Chris Gant, head of wealth management at Capgemini Financial Services UK. Given the increased competition, there is less room for error and success depends on understanding client needs and on aligning service-delivery models in each market. Results from another recent study showed that last year the percentage of assets under management sourced by private banks from the Asia Pacific region has almost doubled to 13 per cent from 7 per cent in 2006. Europe’s share has increased by 6 per cent to 35 per cent, while the US share went down to 42 per cent from 56 per cent last year. If some of the re-weightings are due to dollar weakness, regional balance is being genuinely affected by inflows of net new assets to the APAC region, according to the Private Banking KPI Benchmark 2008 by consulting firm Scorpio Partnership. And the profitability of the private banking sector has been largely unaffected by the credit crunch, according to the study. The 200 banks surveyed, which manage £12,600bn (E16,000bn) - which is over 72 per cent of the estimated total assets managed by private banks worldwide - have seen their ordinary profits grow by over 19 per cent in base currency terms last year. The fall from the 24 per cent of the previous two years can be explained by the decline in the growth rate of assets under management in 2006. However, there has been little progress on closing the gap between the total assets managed by private banks and the total bankable assets. The $17,400bn of assets which wealth managers are estimated to manage, represent 66 per cent of the $26,300bn potential pool of bankable assets. The percentage of potential assets actually managed has only increased by 4 per cent since 2003, according to the benchmark; moreover, bankable assets represent only 65 per cent of the total $40,700bn HNW assets estimated by Merrill’s world wealth report.