The number and asset base of wealthy investors in Europe and North America are similar but they each take a different approach towards inves...

The number and asset base of wealthy investors in Europe and North America are similar but they each take a different approach towards investing, according to the World Wealth Report 2002, published by Cap Gemini Ernst & Young and Merrill Lynch. "While many aspects of private banking services and wealth management are converging to create a global model, others aspects are diverging," said James Greene, the global head of financial services at Cap Gemini Ernst & Young. The report found that new wealth is more important in North America, where inherited wealth averages only between five per cent and 15 per cent of high net-worth individual assets, versus 15 per cent to 25 per cent in Europe. The report found Europe and the US "are similar in terms of HNWI numbers and total HNWI wealth. Surprisingly, both groups exhibit inherent contradictions." North American HNWIs have a greater choice of product providers, and tend to shop around, yet they invest most of their wealth with a primary provider. European HNWIs tend to shop around less, have a greater tendency to manage their wealth in a discretionary manner, yet they invest a relatively small portion with their primary provider. Also, European HNWIs have a long history of seeking protection from hyperinflation, high taxation, and war. "Traditional European HNWI needs are confidentiality, discretion and stability, and they often invest offshore in search of better asset protection," the report noted. By contrast, it found, "the behaviour of North American HNWIs is shaped more by confidence in the 'American Dream', a long history of relative political and economic stability, and a large, coherent market. North American HNWIs tend to get more involved in investment decisions, playing a more active part in the investment process. They more openly discuss their wealth, investment decisions, and strategies, and they are more technologically sophisticated. They have a greater urge than European HNWIs to seek financial information from both offline and online sources, and a greater appetite for using financial planning tools." The report also identified that North American HNWIs measure performance differently. For instance, they often benchmark against indices, notably the S&P 500 and Nasdaq, and actively track investment returns against the latest performance measures. European HNWIs take a more medium-term perspective, measuring performance against a range of returns such as the interest base rate and local market indices. While European HNWIs focus more on reputation, brand, and image, North American HNWIs select their financial providers based on relationships and quality of service. North American HNWIs also invest a larger proportion of their wealth with a single banker, putting an average 60 per cent in the hands of a primary provider. "Europeans, in contrast, tend to spread their wealth over several relationships, entrusting less than 40 per cent with a primary provider," it said. North American HNWIs take a more holistic approach to managing their wealth than Europeans, according to the report. "By holding more of their wealth with one provider and through more extensive use of aggregation tools, North American HNWIs can manage the risk-return profile in an integrated manner across their entire portfolio. European HNWIs, take a less integrated approach." In Asia, the trends are different as well, according to the report. "Like their Latin American counterparts, Asian HNWIs invested a smaller proportion of their wealth in the stock market than North American HNWIs. Many Asian investors, stung by the 1997 Asian economic crisis, had protected their wealth by spreading their investment risk across diversified portfolios. In addition, Asians continued to save a greater proportion of their income than HNWIs in other regions," the report said. Feow Chee Go, the Singapore-based director of the Dutch firm Insinger De Beaufort Management, offers an interesting explanation for the growth of wealth management business in centres like Singapore. "With offshore centres coming under attack for a variety of reasons, a lot of HNWI want to move their wealth to more credible locations like Singapore," she told Complinet. "We have seen remarkable growth in our clients' investment into hedge funds as an alternative asset class over the past two years. Through appropriate diversification and a controlled multi- manager approach clients are able to enjoy superior returns with lower volatility than more traditional instruments," Paul Davies, the Singapore based general manager of Coutts Bank (Schweiz) AG told Complinet. The Merrill Lynch/Cap Gemini Ernst & Young report said that the wealth of HNWs in Asia grew 7.1 per cent to an estimated $5.1trn in 2001. The number of HNWIs in Asia rose to 1.7m. The report noted that Japan, which accounts for half of the region's HNWI wealth, continued to struggle with deflation and debt problems. As a whole, the Asian region fared well due to impressive performance of several local stock markets, including a 31 per cent rise in South Korean markets in dollar terms, followed by 23 per cent in Thailand and 18 per cent in Taiwan. "Surprisingly, HNWIs in less-developed countries had a relatively good year. Responding to higher savings rates, stronger GDP growth and shallower declines in stock market values, HNWI wealth in non-G7 countries went up 4.7 per cent, compared to only 1.9 per cent for G7 countries," the report said. Additional reporting by Saibal Dasgupta in Singapore.