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Private financial wealth continues its steady increase in unstable times

posted onJune 29, 2018
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Global private wealth hit $201.9  trillion last year, up 12% on the year previous, according to a new report by the Boston Consulting Group (BCG). This total, roughly 2.5 times as large as the world’s GDP for the year ($81 trillion),  represented the strongest annual growth rate in the past five years in dollar terms. The rise was greater than in the previous year, when global wealth rose by 4 percent. 

Titled Global Wealth 2018: Seizing the Analytics Advantage, BCG’s eighteenth annual analysis of the global wealth-management industry, finds that the main drivers were strong equity markets in many parts of the world and the significant strengthening of most major currencies against the greenback.

Asset classes held by the wealthy 

In terms of asset classes, $121.6 trillion (60%) of global wealth took the form of investable assets—mainly equities, investment funds, currency and deposits, and bonds—with the remaining $80.3 trillion (40%) held in non-investable or low-liquidity assets such as life insurance, pensions funds, and equity in unquoted companies. 

In general, developed markets held a higher share of wealth in non-investable assets—particularly pension fund entitlements—than developing markets the analysis showed. The Middle East accounted for the highest share of wealth held in investable assets, while residents of Oceania had the lowest share. 

world wealth

Highlights by region: Per capita wealth highest in North America, lowest in Africa

All regions experienced an increase in overall wealth, and Asia-Pacific once again was the fastest-developing region, with a double-digit growth of 19 percent, the research notes.

North America remained the richest region globally in 2017 in terms of personal wealth, which expanded by 8% to $86.1 trillion, with individuals holding roughly $47 trillion (55% of the total) in investable assets—$29.1 trillion of that total in equities and investment funds alone.  The per capita wealth stood at $377,000 in 2017, up from $312,000 in 2016.  

In Western Europe personal wealth rose by 15% to $45.2 trillion, of which $22.6 trillion (50%) took the form of investable assets. In contrast to North America, Western Europe concentrated on currency and deposits as investable assets (56%), with a much smaller share (24%) held in equities and investment funds.

In Asia personal wealth grew by 19% to $36.5 trillion, with residents of China holding nearly 57% of that amount, and the region registered per capita wealth of $13,000. ), Asia remains a cash-and-deposits-heavy region, with 44% of personal wealth held in this asset class 

In Japan personal wealth grew at a rate of 8% to reach $16.8 trillion, more than half of it in cash and deposits, while in Oceania rose by 11% to $4.5 trillion. Residents of Australia owned the bulk of this wealth, at $3.9 trillion.

Personal wealth in Latin America rose by 11% to $4.1 trillion with residents of Brazil ($1.6 trillion) and Mexico ($0.9 trillion) together holding 61% of that amount. The per capita wealth of stood at $11,000.

In the Middle East personal wealth rose by 11% to $3.8 trillion. In Eastern Europe and Central Asia personal wealth rose by 18% to $3.3 trillion and the per capita income remained comparatively low at $12,000.  

Wealth in Africa increased at a rate of 14% to reach $1.6 trillion with per capita income remaining very low, at just $3,000. 

top5 offshore centers of the world

The state of offshore business: Swiss on top

The amount of global offshore wealth- defined as assets booked in a country where the investor has no legal residence or tax- was around $8.2 trillion, 6% higher than in the previous year in US dollar terms. 

Switzerland remained the world’s leading offshore wealth management hub, domiciling $2.3 trillion in personal wealth in the country ahead of Hong Kong ($1.1 trillion), Singapore ($900 billion), U.S. ($700 billion) and Channel Islands and Isle of Man ($500 billion). 

The Swiss sum is the equivalent of almost one third of all global overseas wealth. The two Asian centres have grown at yearly rates of 11% and 10% respectively over the past five years, compared with the 3% rate of Switzerland. The majority of the overseas wealth in Switzerland comes from Germans, the French and the Saudis. 

Mattias Naumann managing director BCG Zurich
 Matthias Naumann, managing director in the BGC's Zurich office 

The country appears to have profited from the current geopolitical uncertainty, Matthias Naumann, managing director in the BGC's Zurich office and one of the authors of the report told the Swiss public television, SRF. 

“In these times, rich clients are looking for havens of stability for parts of their wealth,” he explained. Switzerland offers financial and political stability as well as legal certainty, privacy protection and access to financial markets. “Switzerland does well in all these criteria,” Naumann said.

“Over the next five years, offshore wealth seems likely to continue growing at a (compound annual growth rate) of roughly 5% per year,” the report stated. 

Net offshore inflows from 2012 through 2017 totaled over $800 billion, with Hong Kong and Singapore the key destinations.  Some offshore centers, notably the Channel Islands and the Isle of Man, saw net outflows during the same period. 

What lies ahead

If recent patterns of wealth expansion continue, under an optimistic scenario, global wealth per capita is expected to grow from $33,000 in 2017 to $53,000 in 2022. In North America, wealth should grow at a CAGR of around 5% over the next five years, assuming there are no significant market shocks.

In Western Europe, regional wealth should grow at a CAGR of 5% in local currency terms. In Eastern Europe and Central Asia, BCG expects regional wealth to post a CAGR of around 11% while in Asia a CAGR of roughly 12%. The consulting firm anticipates that wealth expansion in Japan over the next five years will occur at a CAGR of 3% in yen terms while in Oceania future annual growth in the region should be in the range of 7% to 8%.

In Latin America,  five-year growth at a CAGR of 9% to 10% at constant exchange rates. Personal wealth in the combined regions of the Middle East and Africa should post a CAGR of 8% to 10% over the next five years.

The Boston Consulting Group (BCG) is an American multinational management consulting firm founded in 1963. Headquarted in Boston, Massachusetts, BCG has offices in more than 90 cities in 50 countries. Global Wealth 2018: Seizing the Analytics Advantage, stemmed from a survey of more than 150 wealth managers, involving more than 1,500 performance indicators.