North America Overtaken by Europe as the World's Richest Region, as Equity-Heavy U.S. Investors Are Hit With Steep Losses, Says Report by The Boston Consulting Group
Global Wealth Slumped by More Than $12 Trillion in 2008 and Is Not Expected to Return to Precrisis Levels Until 2013; Pressure Is Mounting on Offshore Centers
| Source: Boston Consulting Group
NEW YORK, NY--(Marketwire - September 15, 2009) - The crisis is transforming the global map of
the world's wealthiest people, with Europe nudging out North America as the
richest region, according to a new report by The Boston Consulting Group
(BCG). The report, titled "Delivering on the Client Promise: Global Wealth
2009," is being released today.
Global wealth fell from $104.7 trillion in 2007, measured in assets under
management (AuM), to $92.4 trillion in 2008 -- a decline of 11.7 percent.
It was the first decline since 2001(1).
-- The steepest decline was in North America, where wealth plummeted by
21.8 percent last year
-- In North America, the share of wealth held in equities fell from 50
percent in 2007 to 38 percent in 2008 -- but the region still had the
highest proportion of wealth held in equities
-- Europe had $32.7 trillion in AuM, down 5.8 percent from the previous
year, followed by North America, with $29.3 trillion in AuM
-- Latin America was the only region where wealth increased -- its AuM grew
by 3 percent in 2008
The number of millionaire households worldwide fell from 11 million to
about 9 million -- a drop of 17.8 percent. The decline was steepest in
North America and Europe, at 22 percent in both regions, although the
United States continued to have the most millionaire households -- nearly 4
million.
-- Singapore had the highest concentration of millionaires, with 8.5
percent of the country's households owning more than $1 million
-- Three of the six densest millionaire populations were in the Middle East
-- in Kuwait, the United Arab Emirates, and Qatar
The crisis also narrowed the gap between the wealthy and nonwealthy. Wealth
owned by households with less than $100,000 in AuM increased by 2 percent
in 2008. It declined in all other segments. Among households with more than
$5 million in AuM, wealth fell by 21.5 percent.
"Wealth will begin a slow recovery in 2010 but may not reach its precrisis
level until 2013," said Peter Damisch, a BCG partner and a coauthor of the
report. "We expect wealth to grow at an average annual rate of about 4
percent from year-end 2008 through 2013." Wealth will grow fastest in
Asia-Pacific (excluding Japan) at 9.5 percent per year over the same
period, he added.
Pressure Is Mounting on Offshore Wealth
Offshore wealth fell to $6.7 trillion in 2008, down from $7.3 trillion in
2007. Switzerland remained the largest offshore center. It accounted for
$1.8 trillion, or 28 percent, of offshore wealth last year.
Increased regulatory scrutiny is changing the landscape of cross-border
wealth management, with pressure mounting on offshore centers that have
based their edge primarily on tax avoidance. "Once their tax and legal
advantages evaporate, so too will their appeal," Damisch said. "Being
inconspicuous is a tenuous value proposition in an era of increasing
oversight."
Some nontraditional offshore centers -- including several outside Europe --
remain poised for growth. Singapore and Hong Kong, in particular, will
continue to benefit from their proximity to other Asian countries, where
wealth is expected to stage a faster recovery.
"Iconic offshore centers, like Switzerland, will remain competitive, but
even the most venerable institutions will need to emphasize their
underlying capabilities as international wealth managers," said Damisch.
Wealth Managers Were Resilient but Still Vulnerable
The wealth management industry has weathered the storm better than most
other financial-services sectors, but it was hardly unscathed. Among the
124 institutions in BCG's benchmarking study, the median pretax profit
margin fell to 30.0 percent in 2008, down from 36.4 percent in 2007.
Performance was dampened by client behavior. Stung by losses and scandals,
clients shifted their assets to basic, low-margin investments. "Dazzling
product complexity is no longer seen as a positive attribute -- if it ever
really was," said Bruce Holley, a BCG senior partner and a coauthor of the
report. "It is unclear when -- and to what extent -- assets will migrate
back to high-margin investments, but wealth managers cannot count on a
strong resurgence of these products in the short term."
"The industry will need to do more with less," continued Holley. "Revenues
and profitability are sliding, but clients want more intensive service.
Wealth managers have an opportunity to gain ground while assets and
relationships remain in play, but only if they define a clear value
proposition -- many, for example, will be able to enhance their offering by
narrowing their product range. They also need a more aggressive
client-acquisition strategy -- one that zeroes in on 'dislocated' wealth --
in order to gain share in this market."
The report also includes insights into other topics:
-- The response of Swiss banks to the reallocation of assets to basic
products
-- Strategies for serving lower-tier clients
-- Responses of U.S. wealth managers to the crisis
-- The changing dynamics of Latin America's wealth market
To receive a copy of the report or arrange an interview with one of the
authors, please contact Eric Gregoire at +1 617 850 3783 or
gregoire.eric@bcg.com.
(1) The levels and changes in AuM in this release were measured in local
currencies and converted into U.S. dollars using end-of-year 2008 exchange
rates to exclude the effects of exchange rate fluctuations.
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