Global wealth soared last year, even during the pandemic straining the economy, with financial assets held by individuals surging 8.3% to a record $ 250 trillion, The Boston Consulting Group (BCG) reported Thursday.
Combined with real assets – mostly real estate – and excluding liabilities (such as mortgages), total global wealth rose 7.9% to $ 431 trillion, BCG said in its 22nd annual report. on global wealth. Real assets actually doubled the size of the world’s wealth pool last year, the company reported, generating $ 235 trillion in wealth.
There were “two main levers” to this extraordinary rise, explains Anna Zakrzewski, world leader in BCG’s wealth management segment and co-author of the report.
One of them was a 10.6% increase in new net savings (cash and deposits), marking the largest annual increase in 20 years. “The world was locked in and there weren’t a lot of alternatives to spend and invest, so people saved,” Zakrzewski said.
This was true even in European countries where interest rates are negative – meaning that the value of an individual’s savings might actually go down – cash and deposit rates have gone up, she says.
The second lever has been stock market performance. Investments in capital markets grew 11.5% globally in 2020, fueled by continued easy money policies by central banks around the world. Even before the crisis, low interest rates prompted investors to shift their assets to stocks and alternative investments ranging from real estate to private equity and venture capital, to earn more returns, said Zakrzewski.
Total wealth, that is, financial assets and real assets less liabilities, increased 7.2% in North America to reach US $ 136 trillion; by 9.5% to nearly 117 trillion dollars in Asia excluding Japan; and 4.1% in Western Europe to $ 103 trillion in 2020, BCG said.
In growing markets, such as parts of Asia excluding Japan, real assets account for 63% of overall wealth, while in mature markets such as the United States and Western Europe, financial assets dominate. , representing 59% of global wealth.
One of the reasons is that in much of Asia, outside of major financial centers such as Hong Kong and Singapore, financial markets are not as sophisticated in terms of available investment opportunities, Zakrzewski explains.
But BCG expects that dynamic to change over the next five years as these markets become more advanced. The company predicts that financial assets will grow by 7.9% over the next five years in Asia, compared to just 6.7% for real assets.
This will happen as more local and regional financial services firms, many of which rely on digital models, “will enable more clients in high-growth markets to exploit investment opportunities than ‘they haven’t been able to grab it in the past,’ Zakrzewski said.
The global boom in new wealth has created 6,000 new ultra-rich individuals, those with assets of US $ 100 million or more. This dramatic increase represents an annual growth of 9% compared to 2015, according to the report.
There are now 60,000 people in this rarefied category who together hold $ 22 trillion in investable wealth, BCG said. This figure represents 15% of total global wealth, up from 12% in 2019, according to BCG.
“The ultra segment is the fastest growing segment in the world,” says Zakrzewski.
Nowhere is this more true than in China, which saw an increase of nearly 24% in the number of ultra-rich individuals in 2020 to 7,800; the United States has 20,600. In terms of investable wealth, the absolute level of growth over the next five years will be higher in China, according to Zakrzewski.
According to the report, ultra assets will reach US $ 10.4 trillion in China by 2029, compared to around US $ 9.9 trillion in the United States.
In addition to providing a holistic view of where global wealth is heading, BCG’s annual report provides insight to the wealth management industry on how they should position themselves in response to an ever-changing market.
The report points out, for example, that wealth managers cannot attempt to attract the ultra-rich with one approach, given that this group represents many ages, diverse sources of wealth, and a range of financial sophistication. The next generation of individuals in this group are experiencing “huge growth,” for example, Zakrzewski says, and wealth managers should not assume their loyalty.
“Most wealth managers today are still focusing on the first generation of ultra,” she says. “This loyalty is not a given for the future.”
As wealth grows in China, financial centers are evolving, with Hong Kong set to become the main cross-border reservation center by 2023, according to BCG. Switzerland is currently claiming this place, but should move to second position. Singapore is the third largest cross-border center this year, a rank it is expected to maintain.
While wealth management companies often focus their efforts on the wealthiest investors, the report argues not to ignore the “burgeoning new middle class,” as Zakrzewski calls them. This group, with assets of between US $ 100,000 and US $ 3 million, includes approximately 331 million individual clients with US $ 59 trillion in investable wealth.
These clients typically have simple investment needs and limited financial knowledge, but they are worth considering as they are expected to achieve a compound annual growth rate of 4.1% in the five years to 2025.
Winning and retaining these clients will depend on providing a combination of digital capabilities and access to human advisors, who can leverage technology to deliver tailored services. It could even include access to investments once out of reach for these clients, including private equity or hedge funds.
“All of these things are relevant to this burgeoning middle class, so they feel like they are served,” Zakrzewski says. “Right now they’re stuck in the middle.”