Global Wealth Surpasses Pre-Crisis Levels
Monday, June 06, 2011

Global wealth, defined as total assets under management across all households globally, increased by 8%, or USD9 trillion, to a record USD121.8 trillion in 2010, evidence of a significant rebound from the depths of the financial crisis, the latest Global Wealth report from Boston Consulting Group (BCG) shows.

The study shows that Assets Under Management (AUM) globally - the sum of all households' cash deposits, money market funds, listed securities held directly or indirectly through managed investments and onshore and offshore assets, but not wealth attributed to investors' own businesses, residences or luxury goods - is now USD20 trillion above 2008 levels. Further, the number of USD millionaire households has jumped by 12.2%, but the study warns regulations and client behaviour continue to have a dampening effect on wealth managers' results.

Other key findings of the eleventh annual Global Wealth report show:

• North America had the largest absolute gain of any regional wealth market in AUM, at USD3.6 trillion, and the second-highest growth rate, at 10.2%. Its USD38.2 trillion in AUM made it the world’s richest region, with nearly one-third of global wealth;
• In Europe, wealth grew at a below-average rate of 4.8%, but the region still had a gain of USD1.7 trillion in AUM;
• Wealth grew fastest in Asia-Pacific (excluding Japan), at a 17.1% rate;
• In the Middle East and Africa, growth was somewhat above the global average, at 8.6%;
• In Latin America, wealth grew by 8.2%;
• Taken together, wealth in the Asia Pacific, the Middle East and Africa, and Latin American region accounted for 24.4% of global wealth in 2010, up from 20.9% in 2008;
• Wealth declined by 0.2% in the Japanese market to USD16.8 trillion. As recently as 2008, Japan accounted for more than half of all the wealth in Asia-Pacific. In 2010, it accounted for about 44%;
• In terms of individual countries, the nations showing the largest absolute gains in wealth were the United States, China, the United Kingdom, and India.

The strong performance of the financial markets accounted for the lion’s share (59%) of the growth in AUM. Its impact was amplified by the ongoing reallocation of wealth. From year-end 2008 through 2010, the share of wealth held in equities increased from 29% to 35%.

Commenting on the report's findings, Monish Kumar, a BCG senior partner and co-author of the report, said: “During the crisis, cash was king. Since then, clients have been steering their assets back into riskier investments.”

North America continued to have the highest proportion of wealth held in equities, 44%, up from 41% in 2009.

Kumar continued: “The wealth management industry has overcome tremendous adversity over the past several years, and the sustained recovery of global wealth bodes well for its future but the positive signs should not be misread as a return to normal. A number of disruptive forces, including increased regulatory oversight and changes in client behavior, are rewriting the rules of the game, both literally and figuratively.”

Millionaire households, 0.9% of the global population, accounted for 39% of global wealth, up from 37% in 2009. The number of millionaire households increased by 12.2% in 2010 to about 12.5m.

• The United States had by far the most millionaire households (5.2m), followed by Japan, China, the United Kingdom, and Germany;
• Singapore continued to have the highest concentration of millionaire households, with 15.5% of all households having at least USD1m in AUM. Switzerland had the highest concentration of millionaire households in Europe and the second-highest overall, at 9.9%;
• Three of the six densest millionaire populations were in the Middle East — in Qatar, Kuwait, and the United Arab Emirates;
• The proportion of wealth owned by millionaire households increased the most in Asia-Pacific, at 2.9%, followed by North America, at 1.3%;
• The country with the fastest-growing number of millionaire households was Singapore, with 170,000, up nearly a third from 2009.

This year, for the first time, BCG published figures on the countries with the highest number of “ultra-high-net-worth” (UHNW) households, defined as those with more than USD100m in AUM. The United States had the largest number of these super-wealthy households (2,692), while Saudi Arabia had the highest concentration of UHNW households, measured per 100,000 households, at 18, followed by Switzerland (10), Hong Kong (9), Kuwait (8), and Austria (8). China experienced the fastest growth in the number of super-wealthy households, which jumped by more than 30% to 393.

The amount of offshore wealth, defined as assets booked in a country where the investor has no legal residence or tax domicile, increased to USD7.8 trillion in 2010, up from USD7.5 trillion in 2009. At the same time, however, the percentage of wealth held offshore slipped to 6.4%, down from 6.6% in 2009. The decline was the result of strong asset growth in countries where offshore wealth is less prominent, such as China, as well as stricter regulations in Europe and North America, which prompted clients to move their wealth back onshore.

“Offshore private banking remains a tumultuous part of the business,” said Anna Zakrzewski, a BCG principal and a co-author of the report. “The relative importance of offshore centers is changing rapidly. Some are benefiting from continued asset growth, while others are suffering large asset outflows, with wealth being repatriated to onshore banks, transferred to other offshore centers, redirected into non-financial investments, or simply spent at a faster rate.”

For most clients, however, the core value proposition of offshore banking remains, Zakrzewski said. “Offshore wealth managers offer a sense of stability and security that these clients cannot find in their home countries. Other clients value the expertise or access to certain investments provided by offshore private banks. To continue to grow, offshore wealth managers will need to adapt to the changes imposed by the push for greater transparency while accentuating their strengths in areas that remain extremely relevant to clients around the world.”

Next, the report looks at the returns made by wealth managers during 2010. To gauge the performance of wealth managers (both private banks and wealth management units of large universal-banking groups), BCG gathered benchmarking data from 120 wealth-management institutions worldwide. The survey revealed wide variations in margins, cost ratios, and AUM growth across and within regions. On the whole, the industry experienced mixed results. The average pretax profit margin of wealth managers increased by 4 basis points to 23 basis points in 2010. In most regions, however, revenue margins remained lower than they were before the crisis (and in some places continued to decline), while cost-to-income ratios remained higher (and in some places continued to rise).

In its conclusions, the study predicted that global wealth will grow at a compound annual rate of 5.9% from year-end 2010 through 2015 to about USD162 trillion. This growth will be driven by the performance of the capital markets and global GDP growth, the report says.

As can be expected, wealth will grow fastest in emerging markets. In India and China, for example, it is expected to increase at a compound annual rate of 18% and 14%, respectively. As a result, the Asia-Pacific region’s share of global wealth (excluding Japan) is projected to rise from 18% in 2010 to 23% in 2015.

In Japan, the amount of wealth is expected to decrease slightly in 2011 and then grow slowly for several years. The impact of the recent disaster on private wealth is still unclear, but it could put further stress on the growth of AUM in Japan, the report says.