“New normal” was the operative phrase at the World Wealth Report 2012 press conference as executives from Capgemini and RBC Wealth Management tried to define the unpredictable markets that triggered the second decline in global wealth in the past four years.
According to the World Wealth Report 2012, last year was the second most volatile period in the last 15 years. The number of people with over $1 million of investable assets increased by a marginal 0.8% world-wide, and their overall wealth declined 1.7%, the second decline since 2008.
“While more people surpassed the $1 million disposable income level in 2011, the aggregate wealth of high net worth individuals declined overall as market volatility took its toll,” said George Lewis, group head of wealth management at RBC.
Most of that 0.8% population growth in high-net-worth individuals came from a 1.1% increase in the $1-5 million wealth band, the “millionaires next door,” Lewis said. That is due in part to a rise in individuals breaking the $1 million mark as well as with some high net worth clients falling under $5 million.
Ultra-high-net-worth individuals with $30 million or more in investable assets suffered some of the greatest losses as their numbers dwindled by 2.5% in 2011 and their wealth declined 4.9%. Higher-net-worth individuals bore much of the damages because their investments were in some of the riskier, less liquid securities, such as hedge funds or commercial real-estate, the report said.
Slowdowns in the equity market and GDP growth played a major role in the drawback. Equity market capitalization slid 18.7% and global GDP growth dropped to 2.7% in 2011 from 4.1% in 2010, which had a “depressing impact on growth stabilization,” Lewis said.
In addition, the level of uncertainty and global instability pushed high net worth investors toward more cautious positions. According to Lewis, the popularity of investments in cash and fixed income rose as Treasuries performed well.
“The impact on advisors is that many are facing uncertainty and are searching for capital preservation, which challenges profits for many business models,” Lewis said.
Looking ahead, executives from both companies maintained a cautious perspective, recognizing that much would depend on major leadership decisions on the Eurozone debt crisis, elections and instability in the Middle East.
Asked about what a normal rate of growth of the world’s wealth would be, William Sullivan, global head of market analysis at Capgemini commented: “if you look at the last five years, I’m not sure there is a normal.”
“And there’s a lot of unknown factors affecting markets over the next couple of years,” he added.