The World's Rich Part with $7.9 Trillion in Assets

The global financial crisis has caused the assets of the world's high-net-worth individuals to fall by an unprecedented 19.5% to $32.8 trillion.

By Rita Raagas De Ramos

Everyone knows 2008 was an extremely tough year, with the global financial crisis shaving off hundreds of billions of dollars in global wealth. The latest World Wealth Report attempts to measure those losses, at least for the world's richer population which bore the brunt of the impact of the crisis.

The wealth of the world's high-net-worth individuals (HNWIs) fell by 19.5% to $32.8 trillion in 2008 from $40.7 trillion in 2007. That's an unprecedented decline in HNWI assets in the 13 years that Merrill Lynch and consulting firm Capgemini have collaborated on this report. All regions suffered losses in HNWI assets, with North America (down 22.8%), Asia Pacific (down 22.3%), and Europe (down 21.9%) leading the decline. The US remains the single largest home to HNWIs, with a population of 2.46 million in 2008 (down from 3.019 million in 2007).

Also a record is the 14.2% drop in the population of HNWIs worldwide to 8.6 million in 2008 from 10.1 million in 2007. North America also suffered the most in terms of the number of people that fell off the rich list (down 19%), followed by Europe (down 14.4%) and Acsia (down 14.2%). The fate of the ultra-rich was much worse, with their population down by 24.6%.

Stock market losses were largely responsible for the loss of wealth. Although HNWIs have a diversified portfolio that includes financial assets from property to art, the bulk of their wealth has been diverted to equities over the past years. Global stock market capitalisation plunged 49% to $32.6 trillion in 2008 from a historic high of $63.4 trillion, which is a flashback to levels last reached in 2003.

Valuations of equities "turned from challenging to extremely distressing" in 2008 and how share prices perform from here on will have a major effect on wealth trends because the relationship between HNWIs and stock markets is "very correlated", says Francis Liu, market managing director for Greater China at Merrill Lynch Global Wealth Management.

This latest report brings the HNWI asset and population levels back to their end-2005 levels, virtually wiping out any collective gains made in 2006 and 2007 when stock markets worldwide were mostly in a state of delirium over their extended rallies. Merrill Lynch defines HNWIs as those with net assets of at least $1 million (excluding primary residences and consumables) and ultra HNWIs as those with net assets of at least $30 million.

There are two things to note with this report.

First, despite expectations of continued volatility in stock markets worldwide -- which is clearly the main source of wealth of the people that fall within this elite bracket -- and despite the fact that no one has a crystal ball that can predict exactly how the global economy will recover from the crisis, Merrill Lynch and Capgemini are confident that HNWI assets will grow by 48% to $48.5 trillion by 2013, which translates to a projected annual growth rate of 8.1%.

Second, there is the question of how accurate the findings are to begin with. They are, after all, based mainly on best estimates using publicly available data. The methodology starts with a macro look at the total wealth of a country before making assumptions on a micro level. So while the figures presented in the World Wealth Report reflect an earnest attempt to show a picture of the assets and population of the world's HNWIs, they could very well be an under-representation of what's actually out there. The report notes, for example, that China had 364,000 HNWIs in 2008 (down from 413,000 in 2007). Does that reinstate the belief that only a minority of China's more than one billion population hold the key to the nation's wealth; or is it an inability to capture the value of the wealth that's out there?

Liu points to previous growth figures to back-up the 2013 forecast. He notes that HNWI assets grew by around 8% to 9% from 2002 to 2007 even with the financial problems during that time. Clearly optimistic about the future, he expects the five-year period from 2008 to even things out.

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