A growing chorus of voices is pointing to the fact that global wealth is increasingly concentrated in the hands of a small wealthy elite. The U.S. is a prime example. The top 1% of wealth holders own almost 40% of all wealth. And the top 10% hold almost 90%. The 2015 World Wealth Report (WWR) by Capgemini and RBC Wealth Management released last week has revealed some interesting insights into the priorities, drivers and causes that motivate High Net Worth Individuals (HNWIs).
Who are the world’s millionaires and where are they living? How much wealth have they accumulated and what are their investment preferences?
Millions of Millions
The rich are not only getting richer, they’re getting far more numerous. The 2015 WWR which is based on a survey of more than 5,100 wealthy people in 23 global markets, revealed that nearly one million (920,000) people joined the millionaire ranks in 2014. However, growth rates were more modest in 2014 than in previous years; global HNWI population grew by 6.7% in 2014 to 14.6 million, compared to a growth rate of 14.7% in 2013.
From a country perspective, China and the U.S. drove more than half (52%) of global HNWI population growth; the next 10 markets expanded by less than the global average. India led the pack in growth for both HNWI population (26%) and wealth (28%) due to strong equity market performance and the reduced cost of its substantial oil imports. China followed, with population and wealth growth rates of 17% and 19%, respectively, driven by GDP growth, increased exports and moderate equity market performance.
Figure 1.0 Number of HNWIs by country (‘000), 2013-2014
Figure 1.1 Percent change of number of HNWIs by country (%), 2013-2014
How Rich are the Rich?
On the wealth front, North America continued to have the greatest amount of HNWI total wealth of $16.2 trillion, compared to Asia-Pacific’s US$15.8 trillion. However, Asia-Pacific registered the greatest gain; 11.4% compared to North America’s 9.1%. What’s interesting is that that Asia-Pacific is forecasted to surpass North America in HNWI wealth in 2015.
Indeed the most significant data point regarding global wealth is the forecast: Wealth held by the richest people is forecasted to rise 7.7% a year to $70 trillion by 2017.
Perhaps the most significant finding of the report is that the wealthy now have more capital invested in stocks than any other asset class, representing 27% of portfolios. The takeover of equities over cash as the dominant asset class in HNWI portfolios indicates an expanding appetite for risk and that confidence in the global stock markets is slowly being restored.
The uneven distribution of cash is also intriguing. HNWIs continue to hold more than one-quarter (26%) of their wealth in cash. The top two reasons cited for this were 1) for security in case of market volatility 2) for lifestyle needs. Though the financial crisis has left a large permanent scar, the willingness of the rich to spend on luxury goods continues to trend.
Social Impact Investing is a Priority
Driving social impact and the notion of stewardship takes high precedence for HNWIs. According to the 2015 World Wealth Report, 92% of HNWIs are increasingly focused on giving back to society through use of more robust and/or sophisticated management techniques for investing their time, money and expertise. In particular, millennials (the new parlance for under-40s) are more conscious of, and inclined to implement values-based considerations into their investment portfolios.
The report notes that HNWIs are employing a number of mechanisms to meet their social impact goals. These range from giving back to their local communities in areas like health, education and children’s causes, to investment and business decision-making with social responsibility at the top of their minds. HNWIs are increasingly seeking support on social impact opportunities and approaches from their wealth managers, with more than half (54%) wanting even more help in setting clear social impact goals and measuring the impact of their social efforts.