HNWIs reap rewards of equities and alternatives

The wealth of high-net-worth individuals (HNWIs), people with net financial assets of at least $1m (?792,000), has surged to $3,330bn in 2005, which represents an 8.5 percent increase compared to 2004, according to the 10th edition of the world wealth report by Merrill Lynch and Capgemini. “HNWIs are increasingly looking beyond domestic markets to explore investment opportunities in the new and growth economies around the world,” said Eva Castillo, head of Merrill Lynch global private clients. In 2005, HNWIs increased investments in equities and alternative vehicles and shifted funds from fixed income, anticipating higher bond rates. In addition to investing globally, nearly three out of 10 HNWIs are buying homes in different countries. Alternative investments have enjoyed consistent growth among HNWIs since 2000, when they made up just 3 percent of HNWI portfolios, versus 20 percent in 2005. “The recent market volatility will not greatly affect this scenario,” said Nick Tucker, head of UK and Ireland at Merrill Lynch global private client. “Private clients, those with us, are acting like institutions and this time they are not overreacting to market volatility.” The report estimates that there will be 6 percent annual growth in HNWIs wealth from 2005 to 2010. “The challenge for the wealth management industry is to meet the increasingly sophisticated need of these wealthy people, who demand a greater range of solutions and service, expect better performance and have greater global perspective” explains Ms Castillo. But the recent private banking benchmark study by think-tank Scorpio Partnership highlights the big gap between the amount of wealth that the wealth managers manage and the total world wealth of HNWIs. The study, which surveyed 73 firms controlling $8,500bn in assets for private clients worldwide, shows that the top 10 global wealth managers manage only over $6,000bn. Is the proportion of wealth managed by wealth managers ever going to increase, given that this gap has been there for a few years? “It is going to increase if we show better ability to meet client needs,” stated Mr Tucker. He excludes that pricing of private banking services is an issue. “If there was not increased demand for wealth management, we would see pricing be pressured. But that is not what we are seeing, what we are seeing is that we are pressured to do more, and give more services and more ‘holistic’ solutions.”

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Tucker: wealth management in demand