HNWIs Profit From Stock Market Rally And Alternative Investments In 2003

by Phillip Morton, Investors Offshore.com

16 June 2004

Helped by the recovery in equities, the ranks of the world’s high net worth individuals swelled by 7.5% last year according to the 2004 World Wealth report published by Capgemini and Merrill Lynch yesterday.

As a result, by the end of 2003 there was an estimated 7.7 million individuals around the world with HNWI status (people with financial assets of US$1 million or more excluding home real estate), up around 500,000 on the previous year. Accordingly, the total wealth of this group also grew, by 7.7% to $28.8 trillion.

The ranks of HNWIs in the United States stood at 2,270,000 at the end of 2003, up 14% or a net 272,000 compared with the previous year. China, at 12%, and India, at 22%, also scored solid gains in HNWIs last year. Meanwhile Europe showed a more modest increase, with the number of HNWIs rising 2.4% to 2.6 million with wealth in the region climbing to $8.7 trillion.

Europe as a whole continues to sustain lower average HNWI wealth than North America, primarily due to restrictive income-tax policies which impede the ability to accumulate personal wealth. Spain, Russia and the Czech Republic were notable exceptions where the wealthy investor count increased more rapidly.

Latin America fared better in 2003 than it did the previous year, but growth was relatively low both in HNWI numbers and wealth despite the impressive gains in equity markets across the region. Latin American HNWIs, whose ranks edged up 1.3%, continued to have the highest average wealth per HNWI of any major region.

The Middle East where there were 2.4% more HNWIs last year compared to 2002 also recorded less impressive gains.

"As in previous years, high-net-worth individuals were quick to respond to global trends affecting their ability to preserve and grow wealth. They benefited from a strong stock market rally and solid, global economic growth. In particular, wealthy investors in the US, China and India were able to capitalize on these trends despite a great deal of geopolitical uncertainty," noted James Gorman, president of Merrill Lynch's Global Private Client group.

Petrina Dolby, a vice president in Capgemini's Securities Industry Consulting Practice, also observed that HNWIs were more willing to utilize alternative forms of investment, with hedge funds and real estate popular during 2003.

“HNWIs were among the first investors to begin shifting their focus from low-yielding fixed-income securities back into equities, specialized products and alternative investments," she said.

The wealthy investor has also become a much more sophisticated investor in recent times says Alvi Abuaf, vice president at Capgemini and leader of its North American Securities Industry Consulting Practice, with investment patterns of HNWIs mirroring those of institutions and greater emphasis placed on risk management.

"HNWIs' primary financial objectives have evolved between 2002 and 2003: Today we see them moving away from an emphasis on preservation of capital and toward an increased focus on accumulation and distribution of wealth," he said.

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