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Merrill Lynch and Cap Gemini Ernst & Young Report Increase in Ranks of Wealthy; but Growth Rate Falls to Lowest Level in Seven Years
WORLD WEALTH REPORT SHOWS WEALTH OF HNWIS ROSE 3.6%, WEALTH FELL IN U.S., ROSE IN ASIA AND EUROPE
NEW YORK, June 11, 2003 — Despite volatile financial markets, many of the world's high-net-worth individuals have been able to use knowledge and professional financial assistance to overcome difficulties and grow their wealth.
The wealth of high-net-worth individuals grew 3.6% to $27.2 trillion (25.9 trillion euros) last year, according to the 2003 World Wealth Report published today by Cap Gemini Ernst & Young and Merrill Lynch.
 World Wealth Report |
"The number of high-net-worth individuals increased by just under 200,000 people around the world last year, up 2.1% to 7.3 million people in 2002," said James Gorman, president of Merrill Lynch's Global Private Client group.
"This is the lowest growth rate in the seven-year history of the World Wealth Report."
High-net-worth individuals, or HNWIs, are people with financial assets of at least US$1 million, excluding home real estate; ultra-HNWIs have financial assets of more than US$30 million.
"The number of ultra-HNWIs rose 2% to 58,000 people, and their combined wealth grew an estimated 3.6%," Mr. Gorman added.
James Greene, vice president of financial services at Cap Gemini Ernst & Young, in referencing the report said: "The rise was due to continued, albeit slow, growth in gross domestic product (GDP) and high saving rates in many countries. Worldwide GDP growth rose to 3% in 2002 from 2.3% a year earlier."
"However, declining stock prices slowed HNWI wealth accumulation around the globe compared to that of the 1990s," Mr. Greene said. "Worldwide stock market capitalization fell 16.9% over the 12 months to the end of 2002."
"Overall, Asia-Pacific saw the strongest regional growth in HNWIs wealth, while North America reported a decline in total financial wealth. North America and Latin America were the only two regions to suffer a decline in the number of HNWIs," he said.
Merrill Lynch's Mr. Gorman noted: "In North America, HNWI wealth declined 2.1%, or $200 billion, to $7.4 trillion (7.05 trillion euros) over 2002. There also was a 1.9% decline in the number of HNWIs in North America, down to 2.22 million individuals. Their numbers and wealth was undermined by continued declines in U.S. equities markets. However, the decline in their wealth was substantially less than the 22% drop in the value of the Standard & Poor's 500 index over 2002, indicating that high-net-worth investors had strategies in place for wealth preservation."
"European HNWIs fared better, with their wealth up 4.8%, or $400 billion, to $8.8 trillion (8.4 trillion euros) in 2002," said Mr. Gorman. "The number of HNWIs in Western, Central and Eastern Europe rose 3.9%, or a net 100,000 people to 2.6 million individuals. European HNWIs moved earlier than their counterparts elsewhere to diversify portfolios across major asset classes, insulating them against the worst of the downturn and enabling them to grow wealth. They also benefited from the strength of the Euro and the pound sterling. The largest concentration of HNWIs is in Europe and accounts for a third of global HNW wealth," he noted.
"Despite Japan's economic woes, Asia-Pacific HNWI wealth jumped 10.7%, or $400 billion, to $5.7 trillion (5.4 trillion euros). The number of HNWIs in Asia rose 4.9%, or a net 100,000 people, to 1.8 million HNWIs at the end of 2002. The growth was supported by relatively high saving rates and robust GDP growth in key regional economies such as China, South Korea and Australia." Mr. Gorman said: "HNWIs in the Asia-Pacific region responded quickly to insulate their financial wealth against new market realities and build diversified portfolios."
"In a difficult year, Latin America's HNWI financial assets increased 2.7%, or $100 billion, to $3.6 trillion (3.4 trillion euros) in 2002. The number of HNWIs in Latin America dropped 3.6%, or net 10,000 people, to 270,000 individuals." Real GDP growth in Mexico and Brazil, each of 1.5%, aided wealth growth, but was offset by the oil crisis in Venezuela and the crash of the Argentinean peso. "The region's comparative stability was aided by Latin American investors' propensity for fixed income products over equity products and their allocation in U.S. dollar-denominated investments," he said. "HNWI financial wealth in the Middle East grew 4.6%, or $45 billion, to $1.1 trillion (1 trillion euros). The number of HNWIs grew 4.7%, or net 20,000 people, to 300,000 individuals. The oil-based economies of the Middle East benefited from buoyant demand for oil and the disruption in supply from Iraq and Venezuela," said Mr. Gorman.
Cash and Fixed Income Was 'King'
Mr. Greene noted: "Over all, the vast majority of HNWIs embarked on a balance sheet repair strategy to minimize risk and maximize fixed returns. They accepted the realities of the economic environment by insulating their existing financial assets and pursuing more conservative wealth preservation objectives."
"HNWIs' risk aversion and focus on wealth preservation also led to greater emphasis on strategic asset allocation and diversification into a broad array of traditional and alternative investment products."
"The more diversified HNWIs seemed better able to protect their wealth than the average investor," he said. "Their use of expert financial advice and diversified products enabled them to rapidly and effectively reprioritize strategic objectives, from wealth creation to wealth preservation."
"While many HNWIs, especially in the U.S., held onto existing equity positions, they collectively avoided funneling new income into the stock market."
"They increased their holdings in fixed income and cash, and also diverted funds to alternative investments, real estate and other investments less correlated to equities. In 2002, the investor mantra became 'cash (and fixed income) is 'king'," said Mr. Greene.
One of the authors of the report, Alvi Abuaf, vice president of securities industry consulting practice at Cap Gemini Ernst & Young, forecast: "The global economic projection for real GDP growth of 3.7% this year offers some encouragement for HNWIs. The World Wealth Report expects HNWI financial wealth to rise slowly during the next couple of years, and then increase to reach $38 trillion in 2007, an annual growth rate averaging 7%," said Mr. Abuaf.
| HNWI Growth by Region | ||
| Region | Assets/wealth | No. of people |
| Asia | 10.7% | 4.9% |
| Middle East | 4.6% | 4.7% |
| Europe | 4.8% | 3.9% |
| Latin America | 2.7% | -3.6% |
| North America | -2.1% | -1.9% |
Source: Merrill Lynch, Cap Gemini Ernst & Young 2003 World Wealth Report | ||
The Cap Gemini Ernst & Young Group is one of the world's largest providers of Consulting, Technology and Outsourcing services. The company helps businesses implement growth strategies and leverage technology. Early 2003, the organization employed approximately 53,000 people worldwide and reported 2002 global revenues of 7.047 billion euros. More information about individual service lines, offices and research is available at www.cgey.com.
Merrill Lynch's Global Private Client group is one of the world's pre-eminent private wealth management and advisory services. Its financial advisors combine world-class global resources with local expertise and experience to add value to their clients' wealth management. This individual approach provides clients with personalized financial strategies, innovative products and exceptional client service. Merrill Lynch (NYSE: MER) is one of the world's leading financial management and advisory companies with offices in 36 countries and private client assets of approximately $1.1 trillion. As an investment bank, it is a leading global underwriter of debt and equity securities and strategic advisor to corporations, governments, institutions and individuals worldwide. Through Merrill Lynch Investment Managers, the company is one of the world's largest managers of financial assets. For more information on Merrill Lynch, please visit www.ml.com.
Contact Merrill Lynch:
Guy McKanna 212.449.3987 or 917.859.3558
gmckanna@exchange.ml.com
Cap Gemini Ernst & Young:
Michelle Perkins +44.870.904.5688
michelle.perkins@cgey.com