High Net Worth Individual (HNWI) wealth and population grew by almost 9% globally in 2019 despite a global economic slowdown, international trade wars and geopolitical tensions, the World Wealth Report 2020 from Capgemini has revealed.
North America and Europe took the lead with around 11% and 9% growth respectively, surpassing Asia-Pacific (with 8%) for the first time since 2012. Yet the boom of the previous year has been cloaked with uncertainty as global economies brace for a projected 4.9% decline in 2020 as per the International Monetary Fund.
In North America, an 11% increase in both HNWI population and wealth (compared with a 1% wealth decline in 2018) meant the region accounted for 39% of global HNWI population gains and 37% of wealth growth in 2019.
In the face of today’s extraordinary uncertainty, wealth managers and firms are finding themselves in uncharted waters."
European performance topped that of Asia-Pacific and Latin America, with HNWI population and wealth growing at almost 9%. Despite robust market performance from several Asian countries including Hong Kong, China and Taiwan, APAC overall expanded by 8% in 2019, falling behind the average global HNWI growth rate of 9%.
That was then, this is now
As per World Federation of Exchanges reports, covid-19 erased more than $18trn from global markets over the course of February and March 2020, before a slight recovery in April. Analysis from Capgemini, detailed in its new report, projects a decline of between 6% and 8% in global wealth until the end of April 2020 (compared with December 2019). Investment priorities have also shifted - sustainable investments that uphold environmental and social priorities, are gaining significant prominence post-pandemic.
"In the face of today's extraordinary uncertainty, wealth managers and firms are finding themselves in uncharted waters," said Anirban Bose, Capgemini's Financial Services CEO.
"This unpredictable period may also present opportunities for firms to reassess and reinvent their business and operating models to be more agile and resilient. Analytics and automation as well as emerging technologies like artificial intelligence, can enable firms to enhance revenues through better client experiences while reducing costs by streamlining processes."
Sustainable investing and value-added services gain traction
Growing interest in sustainable investing is offering firms a high-potential engagement opportunity. Among the ultra-HNWI segment, with ESG building considerable momentum. While 27% of HNWIs overall expressed interest in ESG products, 40% of ultra-HNWIs were willing to put cash into sustainability.
HNWIs plan to allocate 41% of their portfolio to SI products by the end of 2020, and 46% by the end of 2021. Wealth management firms have recognized the trend and are prepared to meet the demand as 80% now offer SI options.
Funds focused on socially responsible investing have been a rare bright spot in 2020 market activity, and while HNWI investment in SI recognizes social/environmental impact, they are also motivated by financial value.
The foremost reasons driving HNWI interest in sustainable investing are higher returns and lower risks - 39% expect to receive higher returns from SI products, while 33% view ESG as sound and less speculative. Interestingly, already 26% of HNWIs cite a desire to give back directly to society.