Driven by a strong global economy, the wealth of the world’s high net worth individuals grew 11.4 per cent to $37.2 trillion in 2006, according to the 11th annual World Wealth Report, released today by Merrill Lynch and Capgemini. The number of HNWs in the world increased 8.3 per cent in 2006 to 9.5 million and the number of ultra high net worths rose by 11.3 per cent to 94,970, according to the report, which defines high net worth as those having over $1 million in investable assets and ultra high net worth as those having over $30 million. In 2006 the number of HNWs in the UK surged 8.1 per cent to 484,580 (2005: 448,070) faster than Germany, France (where the number of HNWs increased by 4.1 per cent and 6 per cent respectively) and Europe as a whole (in the 27 European Union countries the number of HNWs increased by 6.4 per cent, compared to an increase of 4.5 per cent in 2005). The UK is now home to 16.7 per cent of Europe’s HNWs. Gross domestic product and market capitalisation growth rates – the two primary drivers of wealth generation – accelerated in 2006, which helped to increase the total number of HNWs around the world as well as the amount of wealth they control. Emerging markets continued to outperform the rest of the world. China and India, for example, enjoyed sustained real GDP growth rates of 10.5 per cent and 8.8 per cent respectively, in 2006. “The globalisation of wealth creation has accelerated,” said Chris Gant, head of Wealth Management, Capgemini Financial Services UK. “If 2005 was characterised by a flow of investment to international funds from HNWs, 2006 ushered in a new era whereby emerging economies leaped ahead with direct foreign investment, strong domestic demand, and hefty stock market gains.” Market capitalisations grew rapidly in Europe, Asia-Pacific and Latin America, driven by strong corporate profits, IPO activity and ongoing foreign investment. Although performance varied across the world, almost all stock market indices posted gains. For example, the Dow Jones World Index grew by 16.4 per cent in 2006. Emerging economies proved resilient, with continued growth in their HNW populations. The largest growth of the HNW population occurred in Singapore and India, where numbers rose 21.2 and 20.5 per cent, respectively, compared to 2005. “This year’s report found that the number of wealthy people, and the amount of wealth that they control, continued to increase in 2006, with extraordinary wealth creation in Singapore and India,” said Nick Tucker leader of UK & Ireland, Merrill Lynch Global Private Client. “The level of wealth creation around the world provides a tremendous opportunity for wealth management firms, and success will go to the firms that offer a service model that meets the ever-changing needs of today’s sophisticated clients.” China and Russia were among the top ten countries with the fastest growing HNW populations. China’s HNW population grew by 7.8 per cent and Russia’s increased by 15.5 per cent. Brazil and India also showed continued strength based on domestic private consumption and competitive service and manufacturing sectors. Latin America saw real GDP growth of 4.8 percent in 2006, and lured substantial foreign direct investment. The region’s HNW population jumped by 10.2 per cent in 2006 as it continued to outperform the global average of 8.3 per cent. In Africa the HNW population rose 12.5 per cent with the total wealth of these HNWs rising faster, by 14 per cent. The Middle East was the only region to see HNW wealth grow at a slower pace than HNW numbers. The global demand for oil in 2006 helped increase the number of HNWs by 11.9 per cent, but a correction in an overvalued stock market pulled down market capitalisation rates, slowing total wealth accumulation. In the report’s first ever section on philanthropic giving, it found that HNWs, led by UHNWs, are increasing the financial resources, time and thought that they devote to philanthropy. In 2006, 11 per cent of HNWs gave to philanthropic causes, compared to 17 per cent of UHNWs. Of these, HNWs applied 7 per cent of their wealth to philanthropy while UHNWs gave even more – over 10 per cent of their wealth to these causes. In total this equates to more than $285 billion globally. By comparison, according to Giving USA Foundation, less affluent individuals donate less than 1.5 per cent of their earnings each year. The Forbes Cost of Living Extremely Well Index measures the cost of a basket of luxury goods and services. This international basket is made up of 42 luxury items including designer handbags, watches, clothing, high-end spa services, tuition at Harvard University, a case of Dom Perignon, filet mignon and planes and yachts. In 2006, the cost of luxury goods rose nearly twice as fast as the cost of everyday consumer products, with the CLEWI rising 7 per cent while everyday consumer products, as measured by the Consumer Price Index, rose only 4 per cent. This signals that demand for luxury goods is outpacing demand for everyday consumables. This year, the report takes a detailed look at HNWs’ allocations to ‘investments of passion’. These include luxury collectibles such as cars, boats, planes, jewellery; art; and sports related investments such as professional teams, sailing and racehorses; and other collectibles such as wines and antiques. Of HNWs’ allocations to "investments of passion" luxury collectibles took the lion’s share (26 per cent) followed by art (20 per cent) and jewellery (18 per cent). In 2006, HNWs shifted more money into real estate investments, at times liquidating some of their alternative investments to fund real estate opportunities. Global direct real estate transaction volumes reached $682 billion in 2006, up 38 per cent from 2005. Real estate investment funds, or REITs, performed strongly as the preferred investment vehicle. While alternative investments remained a key component of HNW portfolios, overall HNW allocations to these investments dipped in 2006. The report found that the global perspective of HNWs continued to increase in 2006, driven by an expanded awareness of international developments, better international fund performance and a desire for risk mitigation. Environmental and socially responsible investing are no longer niche categories. As HNW investors are becoming increasingly conscious of social and environmental concerns, they are looking to invest in companies and financial products that share their concerns. The investment industry is responding to this demand. Nearly half of all UK investment firms now apply socially responsible criteria to more than 10 per cent of their assets under management, a 20 per cent increase over 2004 levels.