In 1926 F. Scott Fitzgerald wrote: “Let me tell you about the very rich. They are different from you and me.” Today, we don’t call people rich because that smacks of class warfare. Instead they’re called high net-worth individuals (HNWIs) or ultra-high net-worth individuals (Ultra-HNWIs) and there are more of them and they’re sprinkled around all over the world.
Merrill Lynch, now part of Bank of America Corp. (NYSE: BAC), and consulting firm Capgemini have just released the 2011 edition of their “World Wealth Report.” The report defines a HWNI as someone who can afford to lose a $1 million investment without going bankrupt. An Ultra-HWNI can afford to lose $30 million. Some highlights:
- Globally, there are 10.9 million HWNIs, up 8% from 2009′s total.
- Globally, there are 103,000 Ultra-HWNIs in 2010, 10% more than in 2009, and they account for 36% of the total wealth of all HWNIs.
- HWNIs grew their financial wealth by 9.7% in 2010 to $42.7 trillion, above the $40.7 trillion high set in 2007 before the global economic crisis.
- The Asia-Pacific region has surpassed Europe to rank second, behind the US.
- For the first time, India has entered the top 12.
- With 3.4 million HNWIs, the US claims more than one-third of the world’s total.
The distribution of HWNIs is changing though. According to the report, the US, Japan, and Germany account for 53% of HNWIs in 2010, down from nearly 55% a year earlier: “Their share will continue to erode if the HNWI populations of emerging and developing markets continue to grow faster than those of developed markets.”
The report’s analysis of the global economy doesn’t really break any new ground. It notes, for example, that emerging economies were the main drivers of global GDP growth of 3.9% in 2010. That rate is expected to fall to 3.2% in 2011 and remain at that level through 2012.
Global equity markets finished 2010 with a market capitalization of $54.9 trillion, primarily due to government stimulus programs. Taking advantage of a “risk-on” market in 2010, HNWIs shifted their holdings into equities until fully a third of their wealth was invested in stocks. Fixed income investments and cash holdings declined, while real estate holdings stayed about even.
What the report calls “investments of passion” also rose in 2010. Luxury collectibles like boats and cars as well as works of art and jewelry also rose last year.
Less than a fifth of HNWIs are under the age of 45 and women account for just 27% of the total, but both numbers grew in the past 3 years.
About two-thirds of the report deals with the HWNI market. The rest is a primer on how an investment firm might take advantage of tastes and trends.
The “World Wealth Report,” among its many virtues, underscores a development noted by many others. The impact of the emerging market nations and the distribution of wealth within those nations is going to be the big, if hidden, story for next couple of decades. China and India alone account for about a third of the global population.
Emerging nations as a group are home to 85% of the world’s population. As these countries accumulate more wealth, and if they are able to spread it around fairly equitably, they will take center stage in the global economy.
That shift will be resisted by the US and Western Europe, who are likely to see their influence diminish slowly. The conflict is not likely to lead to actual warfare. Instead, the battleground is likely to be the global financial system as emerging nations develop more robust financial markets. The shift got rolling in 2009, has gathered force in 2010, and looks to be headed in the same direction in 2011 and 2012. And it will only get stronger in the future.