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Economic uncertainty shrinks world's ultra-wealth by $2 trillion

By James Beech

The wealth of the world’s richest people, often leaders of legacy business families, has been hit the hardest by global economic turbulence to the tune of $2 trillion—the first downturn in seven years.

The wealth of ultra-high net worth individuals (UHNWI), who represent the richest 1% of the world’s high net worth individual (HNWI) population, accounted for 75% of the total global wealth decline, according to the new World Wealth Report 2019 released this week.

The international UHNWI population and wealth dropped by 4% and 6% respectively, compared with almost flat overall HNWI population growth and a 3% decline in HNWI wealth. Compared with last year, ultra-high net worth individuals experienced the broadest change in population and wealth growth—down by more than 15 percentage points—researchers for French consultancy CapGemini found.

Although a relatively small concentration of HNW people, Latin America accounted for the highest share of global ultra-high net worth individuals, along with the second largest UHNWI market, Asia-Pacific. That territory experienced an almost 10% drop in UHNWIs, fuelled by the overall decline in ultra-wealth.

The World Wealth Report said global stock markets started 2018 strongly, but momentum was lost as the year progressed and it ended in the doldrums—mainly because of growing interest rates and trade concerns. Geopolitical unrest, trade wars, loose monetary policies and the decline in world trade were factors in an uncertain world economic recovery.

“In the near term, HNWI investment in stock markets and technology is expected to be somewhat sluggish as they look to hold onto their cash,” the report said.

“Uncertainty surrounding Brexit, unrest in Venezuela, and trade conflicts between major economies, may challenge short-range business and industry predictions.”

Asset allocations shifted significantly, as cash replaced equities to become the most held asset class in the first quarter of 2019, representing 28% of HNWI financial wealth, while equities slipped to the second position at nearly 26%—a decline of 5 percentage points. Volatile equity market conditions spurred a slight increase in allocation towards alternative investments to 13%, a 4 percentage point increase from the previous year.

It will be interesting to see if the apparent decline in ultra-wealth, trends in Latin America and Asia-Pacific, and the shift in asset allocations are evident when Campden Wealth, with UBS, publishes its new Global Family Office Report 2019 in September.

Family offices’ global average total investment portfolio performance hit a significant 15.5% in 2017, the 2018 GFO report said. Outstripping returns for at least the last five years straight, it was more than double the 7% average return in 2016, and a complete revival from the 0.3% average in 2015.

“From a regional perspective, for the first time since this data was reported in 2016, family offices in Asia-Pacific overtook all others to record the highest average performance, reaching 16.4%,” the 2018 GFO report said.

“This can be attributed to a strong year in developing market equities and private equity investments—both areas where Asian family offices are heavily invested.”