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George Lewis, group head, RBC Wealth Management

HNWI population edged up slightly while aggregate investable wealth declined

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The overall financial wealth of high net worth individuals (HNWI) declined across all regions in 2011, with the exception of the Middle East, according to the World Wealth Report 2012, released by Capgemini and its new partner, RBC Wealth Management. The 1.7 per cent decline is the first since the 2008 world economic crisis, a year in which HNWI global wealth declined by 19.5 per cent.

The 16th annual World Wealth Report finds that the number of HNWIs in Asia-Pacific expanded 1.6 per cent to 3.37 million in 2011, making Asia-Pacific the largest HNWI region for the first time, surpassing North America’s HNWI population of 3.35 million. North America remained the largest region for HNWI wealth at USD11.4 trillion compared to USD10.7 trillion in the Asia-Pacific region.
 
After witnessing robust growth of 8.3 per cent in 2010, global HNWI population grew marginally by 0.8 per cent to 11.0 million in 2011. Most of this growth can be attributed to HNWIs in the USD1-5 million wealth band, which grew 1.1 per cent and represents 90 per cent of the global HNWI population. In contrast, global HNWI wealth in 2011 fell by 1.7 per cent to USD42.0 trillion (compared with 9.7 per cent growth to USD42.7 trillion in 2010). The global population of Ultra-HNWIs[2] declined by 2.5 per cent in 2011 and its wealth declined by 4.9 per cent after increasing by 10.2 per cent and 11.5 per cent respectively in 2010.
 
The HNWI population country ranking saw South Korea replace India for the 12th position, while the top three countries, U.S., Japan and Germany, retained 53.3 per cent of the total share of HNWIs, slightly up from 53.1 per cent in 2010. Of the top twelve countries by population, Brazil saw the greatest per centage rise (6.2 per cent) in the number of HNWIs.
 
“While more people surpassed the USD1 million disposable income level in 2011, the aggregate wealth of high net worth individuals declined overall, as market volatility took its toll,” says George Lewis (pictured), Group Head, RBC Wealth Management. “It is significant that for the first time this year there are now more high net worth individuals in Asia-Pacific than in any other region. However, losses in key markets such as Hong Kong and India meant that wealth contracted in Asia-Pacific overall.”
  
Following a period of near normalcy in 2010, volatility levels spiked in 2011 reaching a peak in November 2011 due to widespread concerns that the Eurozone’s debt crisis might overwhelm some larger economies. Although European Union leaders have taken steps to contain the sovereign debt crisis, weak growth and challenges in the Eurozone are expected to add to the volatility in 2012.
 
“Europe will be top of mind for investors, as repeated flare-ups are likely to keep markets on edge. Additional drivers such as the economic performance in China, mature market headwinds, global political leadership changes and policy decisions will all play key roles in determining whether 2012 drives increases in HNWI wealth or further losses,” says Jean Lassignardie, Corporate Vice President, Capgemini Global Financial Services.
  
Uncertainty drove many investors to safe-haven assets in 2011. Economic drivers of wealth were also diversified in 2011, affecting asset classes and producing varied results, with equity and commodity performance on the decline, tangible investments losing value, and investor preferences moving toward capital preservation through cash and fixed income. The best-performing asset class was fixed income, with the price of long-term US Treasuries reaching historic highs.
 
Moving forward, HNW clients will need to prepare themselves for ongoing market volatility and extended periods of bimodal investment outcomes, with returns likely to be extremely positive or extremely negative, rather than equally distributed, the report concludes.
 

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