OWING one of the most volatile periods in the last 15 years, the aggregate investable wealth of high net worth individuals (HNWI) declined by 1.7 per cent last year – the first fall since 2008. This came out of the latest research from the World Wealth Report, published this week by Capgemini and RBC Wealth Management.
Uncertainty over the Eurozone was critical in driving investor behaviour in 2011. Investors were caught between seeking returns and preserving capital. Many opted to forgo returns by moving wealth into cash or lower-risk investments.
Some regions weathered the crisis better than others. For the first time there are now more HNWIs in Asia-Pacific than anywhere else. This was driven by solid growth in the number of wealthy individuals in Japan and China. North America continues to account for the largest regional share of HNWI wealth, at $11.4 trillion (£7.2 trillion), though it was the only region to see a decline in its HNWI population.
Across Europe, the aggregate wealth of HNWIs declined, although the number rose by 1.1 per cent, driven by growing numbers in Germany and France, and growth in Eastern European markets. In the UK, the number of HNWIs dipped slightly, as volatile equity markets and a drop in the property market took their toll.
The bulk of the world’s HNWIs remain concentrated in three countries: US, Japan and Germany. Together, they account for 53.3 per cent of the world’s HNWIs. But their share has been eroding gradually, as populations in emerging markets, especially in Asia-Pacific, continue to grow faster than in the developed world.
There was also divergence in the fortunes of those in the $1-5m band, whose wealth grew, and those with more than $5m, whose wealth declined. While these individuals account for just 10 per cent of the global population, they hold 57 per cent of its investable wealth, and are more likely to invest in less liquid or higher risk assets – adversely affected by bumpy markets.
The best-performing asset class was unsurprisingly fixed income, with mixed performances from commodities, hedge funds and currencies. In equities, market capitalisation fell by 19 per cent. Many tangible investments, like real estate, depreciated in value, despite being perceived as a safe-haven.
Against this backdrop, investments in art, jewellery and memorabilia are seeing considerable interest from HNWIs. While not strictly an alternative to financial assets, the financial crisis has certainly led many to view these holdings as an important component in their overall investment strategy.
Economic uncertainty looks set to be with us for the foreseeable future. In the near term, investors must prepare themselves for ongoing volatility and the possibility of extended periods of disparate outcomes. And for a generation of baby boomers, previously focused on wealth accumulation, wealth preservation and long-term planning must become the focus of their investment objectives.
Tracy Maeter is head of investments at RBC Wealth Management.