World Wealth Report 2005 Sees Strongest HNWI Growth In Three Years

by Phillip Morton, Investors Offshore.com

13 June 2005

The world’s high-net-worth wealth grew strongly in 2004 for a second consecutive year, increasing 8.2% to US$30.8 trillion, according to the 2005 World Wealth Report released today by Merrill Lynch and Capgemini.

The number of high-net-worth individuals (HNWIs) — individuals with a net worth of at least US$1 million, excluding their primary residence — grew by 7.3% to 8.3 million, a net increase of 600,000 worldwide. North America led with a nearly 10% growth rate to 2.7 million HNWIs, surpassing the 2.6 million in Europe. Asia-Pacific’s growth rate of over 8% to 2.3 million HNWIs was twice that of Europe.

"The two main drivers of personal wealth creation — economic growth and market capitalization — worked together to generate the strongest growth in high net worth wealth that we’ve seen in more than three years,” noted James P. Gorman, executive vice president of Merrill Lynch & Co. Inc. and head of Corporate Acquisitions, Strategy and Research.

“Looking regionally, Singapore, Hong Kong, Australia and India saw the highest rates of HNWI population growth, while wealthy people in South Africa and the Middle East benefited from the rise in commodity and oil prices. Growth generally lagged in Europe, with only two nations — the United Kingdom and Spain — showing growth comparable to the worldwide rate,” Mr. Gorman added.

2004 also witnessed the expansion of the European Union, with 10 new countries admitted as members. While GDP growth varied from country to country, Germany, France and Italy, which together account for half of Europe’s economic output, remained in an economic trough.

Bertrand Lavayssiere, managing director, Global Financial Services for Capgemini, commented: “While structural issues in the European economy — notably high unemployment and slow GDP growth — constrained wealth creation across most of the region, the so-called BRIC nations — Brazil, Russia, India and China — continued to emerge as an economic force and create wealth in the process.”

“Stock market gains as measured by the world’s largest indices tended to moderate in 2004 after a very strong recovery in 2003, while growth in some of the smaller, developing markets was extremely strong, driven by commodities and oil,” he continued.

As wealth continues to grow, the report notes that HNWIs with financial wealth between $5 million and $30 million are facing particular challenges in managing their increasing net worth.

“Those HNWIs, whom we have termed the 'Mid-Tier Millionaires' tend to respond to the paradox they are facing, added complexity and their desire to have customized solutions, by increasing the number of specialist providers to manage their wealth,” stated Petrina Dolby, vice president of Capgemini’s Global Wealth Management Practice.

“This, as well as the increase in cost of maintaining their lifestyle over all, places additional pressures on performance expectations, especially in a recovering or stabilizing market such as we have experienced over the past two years.”

After 2004, a year that marked the strongest economic growth worldwide in 20 years, growth is expected to temper in 2005. A combination of factors, including rising inflation and interest rates, is expected to slow global growth and affect the value of financial assets. As a result, global high net worth wealth is projected to grow at a compound annual rate of 6.5% over the next five years, reaching US $42.2 trillion by 2009.

The key regional highlights that emerged from the latest wealth report included:

North America:

• Low and stable interest rates throughout 2004 drove spending on fixed investments, which doubled from 2003.
• HNWIs continued to benefit from tax reform, with protection from estate taxes steadily rising through the end of the decade, before “sunsetting” by the end of 2010.

Asia Pacific:

• China, growing at 9.5%, drove economies across the Asia-Pacific region, with Australia, Taiwan, South Korea, Malaysia, Singapore and Japan all benefiting.
• If China’s growth slows as expected in 2005, its neighbours are likely to feel the pinch. One exception is India, the region’s other 2004 success story.

Europe:

• Europe’s HNWIs grew at a far slower rate as a result of the slow GDP growth of its largest economies: France, Germany and Italy along with high unemployment and tax burdens in the region.
• By contrast, HNWI population growth in the United Kingdom and Spain, at 8.9% and 8.7%, respectively, appears to be significant and follows 2003 performance where these economies also outperformed the rest of Europe.

Latin America:

• HNWIs grew by 6.3% in 2004, substantially higher than the 1.3% rate of 2003. Nevertheless, wealth remained highly concentrated.
• Brazil, accounting for roughly one-third of South American GDP, continued to dominate South America’s economic landscape. There, government fiscal and monetary policies helped drive growth.

Middle East and Africa:

• The HNWI population in the Middle East and Africa (primarily South Africa) grew by 9.5% and 13.7% respectively, well ahead of 2003.
• Oil and commodities drove dramatic gains in stocks trading in the United Arab Emirates and Johannesburg.

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