Following a year-long period of exceptional volatility in 2008, the world's population of high net worth individuals (HNWIs) was down 14.9 percent from the year before and the population of ultra high net worth individuals (Ultra-HNWIs) fell 24.6 percent, according to the 13th annual World Wealth Report, released on Wednesday by Merrill Lynch Global Wealth Management and Capgemini. In a copy of the report sent to the Saudi Gazette, it said the decrease in population was matched by a 19.5 percent drop in HNWI wealth to $32.8 trillion. The unprecedented declines wiped out two years of robust growth in 2006 and 2007, reducing both the HNWI population and its wealth to below levels seen at the close of 2005. In the Middle East, total HNWI wealth declined 16.2 percent to $1.4 trillion and the HNWI population declined 5.9 percent to 373,600. This was the second slowest rate of decline after Latin America which declined 6 percent from the previous year. Ultra-HNWIs suffered more extensive losses in financial wealth than the HNWI population as a whole. Consistent with the drop in the Ultra-HNWI population, the group's wealth decreased 23.9 percent. In the UAE and Saudi Arabia, the HNWI population fell, but at a rate lower than the global average. The UAE had 12.7 percent fewer HNWIs in 2008 than in the previous year, down to a total of just over 67,000. In the Kingdom, there were over 91,000 HNWIs, down 10.9 percent from the previous year. Bahrain's population of HNWIs was 5,000 in 2008, down 19.5 percent from the previous year. Inhibitors of wealth in each of the Gulf states was a reduction in total market capitalization and the dramatic decline in Gulf real estate capital values and rents. “This year's World Wealth Report showed a distinct shift from our reports in recent years,” said Bertrand Lavayssière, managing director, Global Financial Services, Capgemini. “After a year of significant volatility, we're seeing a shift in HNWI activity and priorities. There are currently opportunities for wealth management firms and advisors to understand and effectively address increased client concerns by helping to navigate through the uncertain economic times and build relationships that will continue well into the future.” Global HNWI population is still concentrated, but shifting specific regions continue to host large percentages of the total global HNWI population, namely North America, Asia, and Europe. The top 3 countries for HNWI population - US, Japan, and Germany - together accounted for 54 percent of the world's HNWI population in 2008, up slightly from 53.3 percent in 2007. China's HNWI population surpassed that of the UK to become the fourth largest in the world. Hong Kong's HNWI population shrank the most in percentage, down 61.3 percent to 37,000. The US saw its HNWI population drop 18.5 percent. However, it remains the single largest home to HNWIs with 2.5 million, or 28.7 percent of the total global HNWI population. Decreases in the European HNWI populations varied by country: 12.6 percent in France but only 2.7 percent in Germany, for example. In Japan, home to more than 50 percent of all HNWIs in the Asia-Pacific region, the total HNWI population decline was mild at 9.9 percent, in marked contrast to declines in Hong Kong. The low impact is credited to the Japanese slowdown in macroeconomic growth that started in 2007. Overall, however, HNWI financial wealth is expected to grow to $48.5 trillion by 2013, advancing by an annual rate of 8.1 percent. North America and the Asia-Pacific regions are predicted to lead in wealth growth, with Asia-Pacific surpassing North America by 2013. These regions will be spurred by increasing US consumer spending and the extension of the autonomy of the Chinese economy, already sparking a new increase in consumer demand. HNWIs reduced their exposure to equities across the globe, and increased the proportion of their assets in safer and simpler investments in 2008. More income was allocated to fixed-income investments, cash and liquid assets. Additionally, HNWIs allocated slightly more of their financial assets to real-estate holdings, which rose to 18 percent of the total global HNWI portfolio - an increase of 4 percent from 2007. The proportion of cash-based holdings also significantly increased, to 21 percent of overall portfolios and up 7 percent from 2006. Japan, where the savings rate has been traditionally high, had the largest number of HNWIs moving to cash-based holdings, at 30 percent. North American HNWIs, in contrast, held the lowest amount of cash or deposits as a percentage of their total portfolios at 14 percent, up 3 percentage points from 2007. “Last year was about preservation, not appreciation,” said Amir Sadr, head of Middle East, Merrill Lynch Global Wealth Management. “With no safe havens HNWIs ended up with significant amounts of cash in their portfolios. As markets recover, they will have the flexibility to readjust their strategies and reinvest in new, developing opportunities along the way.” __
