Business | Investment
Millionaires all over the world face steep losses in wealth
The 2009 Capgemini Merrill Lynch World Wealth Report (WWR) should be compulsory annual reading for any wealth-watcher or wealth manager.
- By Sean Kelleher, Special to Gulf News
- Published: 23:04 July 4, 2009
Dubai: The 2009 Capgemini Merrill Lynch World Wealth Report (WWR) should be compulsory annual reading for any wealth-watcher or wealth manager. It has developed a skill in analysing wealth trends through monitoring the habits of high net worths (HNWs) (with assets over $1 million or Dh3.67 million) and ultra-HNWIs (individuals with assets over $30 million) and, in the past, it has acquired a skill in predicting future trends.
However, issue number 13 for 2009 wasn't so lucky. For the first time the publication reported steep losses for HNWs whose population fell by 14.99 per cent and for UHNWIs whose population fell by 24.6 per cent. More alarmingly, the prediction from 2008 that HNWs were putting more "passion" into investment, went wrong for 2009 with the contrary story of a "passionless" current investment scene. The upside? Not much for 2008/9. The WWR report does predict a recovery of HNWs at 8.1 per cent per annum until 2013. The real solace is only for the non-millionaires whose relative wealth has probably been improved by virtue of the fact that their overall wealth has not fallen as far.
However, on a rolling three-year basis it remains sensible to look at what HNWs are doing with their money as they set the trend.
Difficult to summarise 37 pages of print, so for the sake of tracking the way HNWs coped with 2008/9, a summary will suffice.
Chapter two is an overview of 2008. Most of the pressures applied to HNWs are the same as those that applied to everyone else of course; we do not live in a vacuum. Yet, some of the 2008 challenges had significant implications for HNWs. First, "the run up to the global economic crisis had, in hindsight, been 10 years in the making". This heading covers the global debt imbalance and the increased complexity of products. This complexity may well have hurt HNWs more than most in absolute terms, as, in many territories, complex products can't be sold to the man in the street.
Second, "the US financial crisis soon spilled quickly, broadly, and deeply into the real economy worldwide damaging all the macro-economic drivers of wealth (GDP, savings and consumption)". Both savings and consumer spending decreased. If the HNW isn't shopping, the repercussions are deeper. The result is that the world economy is likely to post its worst performance since the Second World War. Thirdly, "Most asset values, weak in 2008's first half, plunged in the second half, turning the market-performance driver of wealth from challenging to devastating". The key point here is that many HNWs invest in order to improve their relative purchasing power over time. They rarely sit on cash mountains and therefore got caught when the asset mountain collapsed. Global equities fell around 50 per cent, and as the report says: "global investors fled to fixed income securities, settling for a return of their investment, not on their investment" which means of course that they were prepared to take real (inflation-adjusted) loss.
The final conclusion on Chapter Two relates to the probability of HNW reaction remaining the same because: "there is no clear consensus yet on when and how the global economy will return to growth." Triggers towards recovery are listed as: the fiscal and financial policies of government, regulation and the role of key players such as the United States and China.
Chapter three covers how HNWs reacted to the predicament with the title giving away the theme: "HNWIs sought refuge in cash, fixed income and domestic investments in 2008".
Chapter three's final prediction, based on the continued lack of certainty in direction is: "HNWIs are expected to remain fairly conservative investors in the short term", with the preservation of capital being priority number one. A clear change in direction from the more normal pursuit of growth. Yet the Report carries the significant caveat: "Looking toward 2010, though, the profile of HNWIs portfolios is likely to shift as economic conditions improve, instigating a tentative return to equities and alternative investments as HNWIs regain their appetite for risk".
- The writer is chairman of Financial Partners/Mondial.
Share this article
More from Investment
More from Business
Popular in Business
-
XPRESS
Way to go this DSF
A fun-filled route to guide you to all the happening dos in town
Business Editor's choice
-
Tight security for air show
Police announce measures to keep people and property safe
-
Nokia aims for 300m customers by 2012
Core focus will be on messaging, maps and navigation, music and applications
-
Court orders freeze on all Saad assets
Many UAE banks exposed to troubled conglomerate
