Global HNWI wealth Could Surpass $100 trillion by 2025, nearly triple the 2006 amount

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HNWI Wealth In Asia-Pacific – World Health Report 2016 by Capgemini

Executive Summary

Asia-Pacific Growth Offsets Global HNWI Wealth Growth Deceleration

  • Asia-Pacific surpassed North America for the first time to become the region with the largest amount of HNWI wealth.
  • Japan and China emerged as engines of global growth, driving close to 60% of the global HNWI population growth in 2015.
  • Ultra-HNWI4 wealth, long a driver of overall HNWI wealth, did not provide its usual boost in 2015.
  • Under the most aggressive growth scenario, global HNWI wealth is projected to surpass US$100 trillion by 2025, nearly triple the 2006 amount.

Strong Opportunity Exists for Wealth Managers to Gain More HNWI Assets

  • HNWI trust and confidence in wealth management firms (and other stakeholders) increased significantly over the past 12 months.
  • Despite the favorable trust environment, HNWIs hold less than one-third of their wealth with wealth managers, although there is significant potential for wealth managers to amass a greater share of HNWI wealth.
  • Wealth managers have an opportunity to tap into HNWIs’ strong demand for investment advice, especially since nearly half of HNWIs favor a growth-oriented approach with less of a focus on liquid assets and more on alternative investments.
  • More HNWIs are starting to favor a pay-forperformance fee model, creating a challenge for firms and wealth managers, but also offering a lever for firms who are able to profitably offer such a model.

Looking Back and Ahead: 20 Years of the World Wealth Report

  • In spite of the devastating effects of the financial crisis, global HNWI wealth expanded almost fourfold over the last 20 years.
  • In the 20 years the World Wealth Report has been published, we anticipated several industry trends, including technology disruption and the rise of social impact investing, but we did not predict the financial crisis and its related impact on regulatory oversight and social attitudes toward wealth.
  • The pace of change over the next decade will accelerate across client, operations, regulatory, and digital areas, including specific issues such as market volatility, wealth transfer impact, pressure on traditional fee models, acceleration of commoditization, regulatory focus on fiduciary duty, and technology disruption from FinTechs.
  • Firms appear to be constrained in their ability to invest for the future, given their relatively low budget allocations to forward-looking areas such as re-orienting the business model and developing new propositions.

Digital Maturity Remains Elusive Goal

  • Wealth managers have joined HNWIs in expressing demand for digital tools, but they are not fully satisfied with the digital tools their firms provide.
  • Digital capability is crucial to maintaining and growing profits, but very few firms have built differentiated digital maturity into their businesses, putting a portion of profits at risk.
  • Digital maturity is only going to increase in importance as HNWIs increasingly embrace new FinTech capabilities, including automated advice platforms and online peer-to-peer (P2P) investment platforms.
  • In addition to the strategic roadmap shared in the 2014 World Wealth Report, wealth management firms can enable digital success by putting wealth managers at the center of digital transformation and collaborating with FinTech players.

Asia-Pacific Growth Offsets Deceleration in Global HNWI Wealth Growth

  • Asia-Pacific surpassed North America for the first time to become the region with the largest amount of HNWI wealth. Buoyed by Asia-Pacific, global HNWI population and wealth grew modestly in 2015, by 4.9% and 4.0%, respectively. Faltering growth in the Americas constrained global HNWI wealth expansion.
  • Ultra-HNWI wealth, long a driver of overall HNWI wealth, did not provide its usual boost in 2015. Dampened by Latin America, the global ultra-HNWI population expanded by just 4.2% and wealth by only 2.5%. Excluding Latin America, however, ultra-HNWI wealth grew more than the other wealth segments, both in 2015 and over the past four years.
  • Japan and China emerged as engines of global growth, registering double-digit increases in HNWI population and ultra-HNWI wealth growth. Together, the two countries drove nearly 60% of global HNWI population growth. Brazil was the poorest performing country, losing 7.8% of its HNWI population and 5.9% of ultra-HNWI wealth.
  • Global HNWI wealth is projected to surpass US$100 trillion by 2025, nearly triple the 2006 amount, propelled by strong Asia-Pacific growth. If past growth rates hold, Asia-Pacific is likely to continue to be a dominant force over the next decade, representing two-fifths of the world’s HNWI wealth, more than that of Europe, Latin America, and the Middle East and Africa combined.

Building on Momentum, Asia-Pacific Becomes Largest HNWI Market

Asia-Pacific emerged as the highlight of global HNWI growth in 2015, surpassing North America in HNWI wealth for the first time ever, against a backdrop of more moderate wealth expansion throughout the rest of the world. Globally, growth in HNWI population and wealth slowed to 4.9% and 4.0%, respectively, well off the more robust 2010 to 2014 annualized rates of 7.7% and 7.2%, respectively (see Figures 1 and 2). Asia-Pacific was the only region whose 2015 growth in population (9.4%) and wealth (9.9%) effectively matched its 2010 to 2014 annualized growth on both counts (9.1% and 10.0%, respectively).

North America, long a stronghold of wealth, saw HNWI growth slow dramatically, creating the opportunity for Asia-Pacific to move ahead. While the North American economy and real estate market performed solidly, the equity markets in both the United States and Canada finished 2015 in negative territory, causing these HNWIs to achieve only modest increases in population (2.0%) and wealth (2.3%).

Latin America also constrained global wealth expansion, recording a drop in HNWI population of 2.2% and wealth of 3.7%. Brazil, the region’s largest economy, continued to contract in the face of political volatility and massive equity market declines. Europe’s growth was steady (4.8% for both HNWI wealth and population), led by Spain (8.4% and 8.9%), Netherlands (7.5% and 7.9%), France (5.9% and 6.3%), and Germany (5.1% and 5.6%).

The more muted growth throughout other parts of the world helped Asia-Pacific clinch its position as the largest HNWI segment. Asia-Pacific had been building momentum for years, first overtaking North America in HNWI population in 2014. Now it has substantially increased its population lead (with 5.1 million HNWIs, compared to North America’s 4.8 million), while also pulling ahead in terms of wealth (US$17.4 trillion versus North America’s US$16.6 trillion). Japan and China proved to be the engines of Asia-Pacific and global growth, together driving about 60% of global HNWI population growth in 2015.

As in previous years, Japan and China made up half of the group of four that dominate HNWI wealth. Along with the United States and Germany, the four countries accounted for 61.2% of global HNWIs in 2015 (see Figure 3), reflecting a consistent and steady uptick over the last four years (from 58.4% in 2012). Further, the four countries drove 81% of HNWI population growth in 2015.

The ranking of HNWI population by country remained largely the same from a year earlier, with a few exceptions. Brazil, reflecting its array of troubles, saw HNWI population tumble by 7.8%, causing it to move down one place in the rankings to 17th. Mexico lost 1.8% of its HNWI population, pushing it down one notch to 22nd place. Strong HNWI growth in Netherlands (7.5%) caused it to move ahead one place to 11th in the rankings, switching places with India, which had growth of only 1.1%.

HNWI Wealth In Asia-Pacific

HNWI Wealth In Asia-Pacific

The biggest bursts of growth in HNWI population came from China and Japan. Though the Chinese equity markets suffered some volatility throughout the year, they ended on a high note, burnishing China’s status as a global wealth powerhouse. Aided also by the highest GDP and real estate market growth among the top markets, HNWI population leapt by 16.2% in China, the largest gain of any country. In Japan, economic and market indicators recovered assertively from a year earlier, boosting HNWI population by around 10.9%.

Latin America Drags Down Ultra-HNWI Growth

Traditionally, ultra-HNWIs—with US$30 million or more in investable assets—have acted as the engines behind overall HNWI population growth. That was not the case in 2015 (see Figure 4), largely due to the powerful influence of the Latin American ultra-HNWI segment. While Latin Americans made up 3.4% of global HNWIs in 2015, they accounted for 8.4% of global ultra-HNWIs. Similarly, Latin Americans held 12.6% of HNWI wealth, but 28.7% of ultra-HNWI wealth, the most of any region.

Because of this outsized influence, Latin America’s struggles have impacted the ultra-wealthy, both in the region and globally. Brazil, accounting for 56.3% of Latin American ultra-HNWI wealth, predictably emerged as a trouble spot. With a striking 5.9% decline in ultra-HNWI wealth, Brazil was the main cause of below-par HNWI growth in Latin America, as well as slower global ultra-HNWI growth.

Globally, the ultra-HNWI population expanded by only 4.2% in 2015, well below the 2010 to 2014 annualized rate of 7.9%. Similarly, ultra-HNWI wealth grew by only 2.5%, far from the 6.1% annualized rate over 2010 to 2014. Excluding the drag of Latin America, ultra-HNWI wealth growth globally would more than double, to 5.3% in 2015, the most of any of the wealth segments.

Asia-Pacific’s growth rate of 10.8% was the only one to reach double digits, driven by supercharged ultra-HNWI wealth growth in China and Japan of 17.6% and 13.2%, respectively. Asia-Pacific ultra-HNWI wealth grew at more than double the rate of next-fastest Europe (4.8%), and well over North America’s 2.9%.

HNWI Wealth In Asia-Pacific

HNWI Wealth In Asia-Pacific

Asia-Pacific Should Continue to Fuel Global HNWI Wealth Expansion through 2025

Over the next decade, Asia-Pacific is expected to change the face of global HNWI wealth. Already in the past ten years (2006 to 2015), the region has doubled its HNWI population and wealth, boosting population by 99.1% to 5.1 million and wealth by more than 100% to US$17.4 trillion (see Figure 5).

China was fundamental to the increase, tripling its HNWI population and wealth during this time. Meanwhile, HNWI wealth expanded much more slowly in Europe (34.3%), where it was curbed by the staggering impact of the financial crisis, as well as in Latin America (44.3%). North America witnessed a robust growth rate of 47.5% during the same period.

HNWI Wealth In Asia-Pacific

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The post above is drafted by the collaboration of the Hedge Fund Alpha Team.

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