Against a backdrop of rising interest rates, inflationary pressures and geopolitical realignments, the world’s richest investors and their advisers are re-examining the potential impact of their wealth.
Private wealth, whether as a source of investment or philanthropy, is going to shape the opportunities presented by technological change in the fourth industrial revolution, which represents “the biggest structural upheaval in 250 years”, says Paul Donovan, UBS Global Wealth Management’s chief economist, commenting on the Global Wealth Report, just released by UBS and Credit Suisse.
“It is private wealth that will lead the funding needed to create diverse, sustainable societies,” says Mr Donovan, adding that “to mobilise global private wealth more effectively we must first understand where that wealth is, how it is created and what policies might risk its destruction.”
While global net private wealth fell by $11.3tn (2.4 per cent) to $454.4tn during 2022, as measured in current nominal dollars, it is expected to grow by 38 per cent over the next five years, according to the research.
Low- and middle-income countries are expected to be responsible for 56 per cent of growth, although they account for just 31 per cent of current wealth. The number of millionaires is predicted to reach 86m, while the number of ultra-high net worth (UHNW) individuals will rise to 372,000.
Wealth management groups need to take these wealth dynamics into account to survive and thrive, say the authors. Sizing the global wealth management market, identifying trends, and forecasting wealth growth potential is crucial for wealth managers to plan their business strategy and allocate resources.
Research findings are “an essential data source for business development purposes in the wealth management sector,” states Nannette Hechler-Fayd’herbe, chief investment officer for the Emea region and global head of economics and research at Credit Suisse, which was acquired by UBS earlier this year.
“The fact that the US is the biggest UHNW market of the world clearly supports dedicated UHNW coverage and teams in the country, illustrating the need to be present in this market to truly be a leading global wealth manager,” adds Ms Hechler-Fayd’herbe.
China has been the “global wealth creator”, for the last two decades, driving wealth managers to focus their efforts on this market, she says. And while the world’s second biggest economy is expected to grow at a slower pace in the next few years, “both in terms of GDP and any related areas feeding into wealth growth”, India is catching up and could become an important driver of wealth creation.
The research shows the population of “dollar millionaires”, rapidly growing in recent years, declined in 2022 by 3.5m, during the first fall in global wealth fell since 2008. Last year, individuals with wealth of more than $1m fell from 62.9m to 59.4m.
This slight shrinkage of the world’s millionaires, who account for 1.1 per cent of all adults, was mainly due to inflation and rising interest rates which hampered economic growth, depressed asset prices and contributed to a widespread depreciation of currencies against the dollar.
Even with this drop, there are four times as many dollar millionaires in the world as there were at the turn of the century, although these include 4.4m “inflation millionaires” who would no longer qualify if the millionaire threshold were adjusted for inflation in 2022.
The ultra-rich, with net worth above $50m, also shrank by 22,500 individuals to 243,060, but have risen by more than 60,000 in the past three years alone. Among individual countries, the US leads by a considerable margin, accounting for 51 per cent of the world total number of UHNW individuals, with China in second place.
While overall wealth inequality rose during the Covid-19 pandemic, last year it largely returned to 2019 levels, with the wealth share of the global top 1 per cent slightly falling to 44.5 per cent. This was mainly because non-financial assets, especially housing, outpaced financial assets in value, which led to an increase of median wealth.
Financial assets, disproportionately held by higher wealth groups, have accounted for most of the increase in total wealth since the 2008 financial crisis. But the widespread decline of share prices in 2022 caused total financial wealth to contract by $19tn, with losses heavily concentrated in wealthier regions such as North America and Europe, which together shed almost $11tn. Losses were partially offset by a rise of $7.9tn in non-financial assets, especially housing, which performed relatively better in most regions, except for China.
Over the longer term, rapid wealth growth in emerging markets driven by China has been a key reason why global wealth inequality has fallen this century, although the headline effect belies increasing wealth inequality within countries. In fact, going forward, “China could end up leading to an increase in global inequality”, predicts economist Anthony Shorrocks, one of the report’s authors.
In terms of wealth per adult, Switzerland continues to top the list followed by the US, Hong Kong, Australia and Denmark. Belgium and Australia top the median wealth list.